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Latest bfinance survey reveals greater adoption but challenges persist

Most asset owners now rank ESG considerations as important to their investment strategies, including how they are implemented, according to a recent survey by bfinance.

This change in attitude was recorded across the investment industry in a survey of 256 senior staff at asset owners including pension schemes, family offices, foundations, and endowments from around the world.

Nearly half of these respondents (46%) gave a strong affirmative, with a further 39% identifying ESG considerations as having ‘moderate importance’ to their investment strategies.

Encouragingly, this result was relatively consistent across different investor types, though variations were apparent between regions and amounts of assets under management.

For example, larger asset owners (those with over $25bn in AUM) were more likely to view ESG considerations as highly important than smaller counterparts. Of respondents managing less than $1bn, 38% identified ESG criteria as highly important, compared to 63% of the largest asset owners.

This suggests ESG is being taken seriously by investors with the greatest influence.

Discrepancies were also identified on a geographical basis. Most European respondents (61%) identified ESG criteria as highly important, compared to 33% and 24% of Asia Pacific and North American respondents, respectively.

ESG has become more popular among investors for several reasons but among the survey’s qualitative feedback it was revealed that the views of end-clients were increasingly factoring into decisions.

“It’s more important now as there is good evidence to suggest that ESG integration into an investment process enhances risk adjusted returns,” remarked an anonymous individual on behalf of an Australian public pension fund. “Our membership expects us to be considering ESG issues in whole of portfolio management so it’s very important.”

How we ESG
This has manifested itself in several ways. Nearly half (46%) of asset owners assess their portfolio’s carbon emissions, up from 28% in 2020, and 28% of investors map their portfolios against the UN Sustainable Development Goals.

In addition, over half (60%) of the survey’s respondents strongly agreed that ESG criteria had become important when selecting managers, an increase from 41% in 2018. At the same time, 19% of asset owners have terminated manager relationships with ESG cited as a primary factor in the decision.

Tellingly, the Covid-19 pandemic has been identified as a significant driver to asset owners dedicating more time and resources to ESG considerations. Fears had been raised that the crisis would force investors to overlook ESG, but these appear unfounded, with 32% of respondents confirming the pandemic had forced them to give more focus to this area of investment.

Data, data, data?
Despite this sea change in attitudes among asset owners, challenges continue to frustrate complete ESG adoption throughout the industry. Although this discipline of investment is not new, it has yet to fully develop and match the popularity it is now receiving.

This is particularly evident by the apparent poor standard of ESG data. Most asset owners (84%) confirmed they had experienced challenges in obtaining consistent ESG reporting, with 55% identifying this as a “major” challenge. Measuring carbon emissions was recognised as a challenge for 78% of respondents.

Poor data standards, paired with a lack of standardisation around interpretation and ratings, were a common theme in this area of the survey’s qualitative research.

“There is a huge need for us all to be speaking the same language to inform stakeholders what is at risk,” said one respondent. “We need uniform measurement and ratings.”

“[There should be] integration of reporting and disclosure regulations,” added another. “This would make comparative information easier to source because it would be in a consistent form (albeit maybe not consistent data) in a known place.”

A lack of regulatory framework around ESG, or at least unification between different approaches from regulators, was identified as a cause behind this. This presents a key message that politicians and regulators need to do more to overcome “inconsistences among developed nations in terms of goals and policies”, according to one respondent.

Last Updated: 19 February 2021
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