ESG Affirmations and Surprises: Asset Managers Look to the Future

The development of ESG investing within the international asset administration group continues to be a supply of fascination and a lightning rod for dialog, engagement, and innovation. Because the “Index Industry Association 2023 ESG Survey” demonstrates, ESG issues are reworking how asset managers method their jobs and serve their purchasers.

The primary IIA ESG World Asset Supervisor Survey in 2021 helped affirm that ESG issues are right here to remain. Of the 300 asset managers queried, 85% anticipated such standards to play a better position in portfolio building and administration within the coming decade. I outlined the important thing anticipated drivers of this development in “ESG: Full Speed Ahead, with GPS” and unpacked the growth prospects in more detail with insights from the second IIA ESG survey in 2022, honing in on how ESG implementation had expanded past equities and into fastened revenue.

Quick ahead to 2023 and the IIA’s third annual ESG survey of world asset managers reveals much more affirmations of ESG standards — together with fairly just a few surprises.

On one stage, the most recent international ESG survey emphasizes the worldwide asset administration group’s sturdy dedication to ESG methods even within the face of financial volatility and political and geopolitical friction. On one other stage, the survey illuminates how the group has embraced innovation in instituting ESG methods on behalf of its purchasers.

Environmental Elements That Are Most Essential to Corporations’ ESG Methods, 2023

Base: Respondents who implement ESG standards of their portfolios: US (n72), UK (n76), France (n58), Germany (n66)

Certainly, asset managers are pondering extra broadly and creatively round ESG elements, in keeping with the survey. From an environmental standpoint, whereas local weather continues to be king — 75% of asset managers prioritize the “E” over the “S” and the “G” — the scope of climate-related matters that concern asset managers has widened. For the primary time, carbon emissions are not the highest precedence.

On the similar time, social in addition to governance elements are way more top-of-mind. But, whereas international asset managers perceive the necessity to maintain sharpening their deal with ESG-related funding points and increasing the depth and breadth of their evaluation, additionally they know they want higher information and metrics. Over half (54%) of the asset managers surveyed say that evaluating the social and governance efficiency of firms is a problem and 56% say that maintaining with altering societal views and associated expectations round ESG points is tough.

Applied sciences That Asset Managers Anticipate to Have the Largest Impression on ESG Measurement and Reporting over the Subsequent Two Years, 2023

Base: All respondents (n300)

World asset managers are additionally pondering extra creatively about ESG implementation and additional reframing the asset class dialogue. Although ESG implementation’s continued growth into fastened revenue was anticipated given earlier traits, the speedy rise of ESG standards in commodities was extra shocking. Simply 37% of survey respondents mentioned they utilized ESG consideration to the asset class in 2021. This 12 months, 62% mentioned they did.

However that isn’t the 2023 survey’s greatest revelation. To my thoughts, the important thing takeaway is the position asset managers anticipate rising applied sciences to play in increasing and enhancing ESG metrics, information, and evaluation. Asset managers are effectively conscious of the present challenges. A scarcity of information standardization throughout markets, inadequate quantitative information, and a dearth of agreed-upon rankings and strategies are nothing new. However survey respondents imagine large information analytics, cloud computing, and different applied sciences will assist tackle these deficits and enhance the standard, scope, and content material of ESG information and metrics. The truth is, of the asset managers surveyed, 48% anticipate synthetic intelligence (AI) and machine studying could have probably the most affect on ESG measurement and reporting over the following two years.

Asset managers acknowledge how tough and unsure ESG implementation is immediately. However they see huge technologically pushed enhancements on the horizon, which means that ESG integration continues to be in its early phases, with way more to return.

That is the seventh installment of a sequence from the Index Industry Association (IIA). The IIA celebrated its tenth anniversary in 2022. For extra info, visit the IIA website.

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All posts are the opinion of the writer. As such, they shouldn’t be construed as funding recommendation, nor do the opinions expressed essentially mirror the views of CFA Institute or the writer’s employer.

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