WHAT’S CHANGED?
Four years in review
Some would say 2022 was a low point for the sustainable investment (SI) industry. Last year’s survey indicated that a number of large asset managers appeared to be watering down commitments amidst signs of a retrenchment of climate policy initiatives. While evidence this year points towards a reversal of this trend, it seems we may be entering a new ‘steady’ state, with greater differentiation of the progressives from the broad market.
Firmwide commitments to sustainable investment remain unchanged year-on-year, indicating that those recognising the need for clear targets have implemented these, with the rest unmoved. 61% of firms surveyed with dedicated SI teams made hires over the year, with many adding specialist resource, particularly recruiting those with climate-science backgrounds.
But with dedicated policies and headcount having been in place for some time now, to what extent are they influencing investment processes?
Some would say 2022 was a low point for the sustainable investment (SI) industry. Last year’s survey indicated that a number of large asset managers appeared to be watering down commitments amidst signs of a retrenchment of climate policy initiatives.
Once again, a significant proportion (30%) of survey respondents still cannot evidence views on ESG leading to changes in investment portfolios. Ironically, almost all (98%) respondents are UN Principles of Responsible Investment (PRI) signatories, and the first principle reads “We will incorporate ESG issues into investment analysis and decision-making processes.” This raises clear questions around the extent to which managers are translating analysis into action.
This could be partly because incentives are not aligned with the appropriate metrics. While only a minimal drop compared with the year before, once again the number of managers surveyed aligning sustainability risks with remuneration policies fell by two percentage points to 60%. For US-based asset managers, this number is below 50%.
More than three out of four (79%) respondents that cannot evidence ESG views changing portfolio holdings still believe that these are important to their strategy. This compares to 98% of the ESG integrators and 92% of respondents as a whole.
More than three out of four (79%) respondents that cannot evidence ESG views changing portfolio holdings still believe that these are important to their strategy.
In 2022, we noted that fund managers may be relying on their stewardship effectiveness (i.e., corporate engagement) to implement sustainable investment policies. This year's findings suggest a continuation of this trend.
While the proportion of managers with dedicated SI teams is unchanged from last year (80%), the number of asset managers with dedicated engagers has grown (from 54% to 58% year-on-year). This is certainly encouraging but, as we point out in our Stewardship section, specialist hires are not always the panacea.
It certainly seems from our research that we are entering a two-speed world when it comes to sustainable investment. Those who were late to move do not appear to have caught up, perhaps owing to political pressure – and the recalcitrant attitudes of a minority of investors – have continued to harden in the last year. This truly underlines the importance of institutional alignment when it comes to selecting asset manager partners. Some might just not see the world in the same way as you.
