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Like many others, asset managers view ESG (environmental, social, and governance) as a top priority, but who is really driving this charge? Let’s take a look and break down the E, S, and the G a little bit further.
Russell Investments’seventh-annual ESG Manager Survey reflects the views of 369 global asset managers, representing $79.6 trillion in assets under management across a broad range of asset classes, including equity, fixed income, real assets, and private markets.
The biggest takeaway is this: roughly 90% of respondents said they cover ESG in meetings with the senior management of companies that they invest in, up from 80% in the 2018 survey. Overall, 35% of respondents report they always cover ESG in their meetings, up from 21% in 2018.
While asset managers are covering ESG in meetings, asset owners might be the ones leading this charge. Survey respondents say they hear from clients (asset owners) more on climate risk/environmental issues (60%) than any other issue, followed by diversity & inclusion/social issues (20%).
While climate risk/environmental issues topped the client-engagement list globally and in all regions, including 97% of respondents in Continental Europe, U.S. respondents were more balanced with 46% selecting climate risk/environmental issues and 29% picking diversity & inclusion/social issues.
Digging in deeper, from a geographical perspective, every U.K. manager surveyed says they now integrate ESG into their investment processes, a 13% jump from 2020, and 97% of managers in Continental Europe said likewise. While managers in the U.S. lag in this regard, the percentage among U.S. respondents has grown from 67% in 2019 to 82% in this year’s survey. Quite the jump.
Now, let’s break down the E, S, and the G.
Environmental rises. “Environmental” has increased over the past four years from 5% in 2018 to 14% in this year’s survey. This steep increase reflects the heightened focus on tackling climate risk, as well as the impact of regulations. It is mostly attributable to managers in Continental Europe.
Social lags behind. “Social” continues to lag at 6%, which was roughly in line with the 2020 survey results. While social issues such as diversity, healthcare availability, and affordable housing have received greater attention during the COVID-19 pandemic, social factors are harder to quantify and there are very few investment opportunities directly tied to these issues.
Governance priority for asset managers. Roughly 80% of managers highlight “governance” as the most important ESG factor, but Continental European and Canadian managers put greater focus on environmental issues. This reflects the importance of company management in delivering long-term enterprise value regardless of industries.
The bottomline is ESG is here to stay. Asset managers know it, and so do asset owners. I would bet we will continue to see steep rises in the months ahead, perhaps even faster than we think.
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The world needs to move from grey to green, fueled by design techniques that are sustainable in a circular economy.