The evolution of ESG investing in the worldwide asset management community continues to be a source of intrigue and a lightning rod for conversation, engagement and innovation. As the “Index Industry Association 2023 ESG Survey” shows that ESG considerations are changing the way in which asset managers approach their work and serve their clients.
The first IIA ESG Global Asset Manager Survey of 2021 confirmed that ESG considerations are here to remain. Of the 300 asset managers surveyed, 85% expected such criteria to play a greater role in portfolio construction and management in the approaching decade. I outlined the important thing expected drivers of this growth in “ESG: Full Speed Ahead, with GPS” and further detailed the expansion outlook using insights from the second IIA ESG survey in 2022, highlighting how ESG -Implementation has expanded beyond converting stocks into fixed income securities.
Looking ahead to 2023, IIA’s third annual ESG survey of worldwide asset managers reveals much more confirmation of ESG criteria – together with just a few surprises.
On the one hand, the newest global ESG survey highlights the worldwide asset management community’s strong commitment to ESG strategies, even within the face of economic volatility and political and geopolitical tensions. On one other level, the survey highlights how the community has embraced innovation in adopting ESG strategies on behalf of their clients.
Environmental aspects that matter most to firms’ ESG strategies, 2023
Base: Respondents who implement ESG criteria of their portfolios: USA (n72), Great Britain (n76), France (n58), Germany (n66)
According to the survey, asset managers are literally considering more broadly and creatively about ESG aspects. From an environmental perspective, climate continues to be the be-all and end-all – 75% of asset managers prioritize the “E” over the “S” and the “G”, however the scope of climate-related issues on asset managers’ minds has expanded. For the primary time, CO2 emissions are not any longer the highest priority.
At the identical time, social and governance aspects are far more outstanding. But while global asset managers understand that they should increase their concentrate on ESG-related investment themes and expand the depth and breadth of their evaluation, in addition they know that they need higher data and metrics. Over half (54%) of asset managers surveyed say assessing firms’ social and governance performance is difficult, and 56% say it’s difficult to maintain up with changing societal views and associated expectations to maintain pace with ESG issues.
Technologies that asset managers expect to have the best impact on ESG measurement and reporting in the subsequent two years, 2023
Base: All respondents (n300)
Global asset managers are also considering more creatively about ESG implementation and continuing to reframe the asset class discussion. Although further expansion of ESG implementation into fixed income was expected given previous trends, the rapid rise in ESG criteria in commodities was more surprising. Only 37% of survey respondents said they’d apply ESG considerations to the asset class in 2021. This yr, 62% said they’d done so.
But that is not the largest revelation of the 2023 survey. In my opinion, a very powerful takeaway is the role that asset managers expect latest technologies to play in expanding and improving ESG metrics, data and evaluation. Asset managers are aware of the present challenges. An absence of information standardization across markets, insufficient quantitative data, and a scarcity of consistent assessments and methodologies are nothing latest. However, survey respondents consider that big data analytics, cloud computing and other technologies will help address these shortcomings and improve the standard, scope and content of ESG data and metrics. In fact, 48% of asset managers surveyed expect artificial intelligence (AI) and machine learning to have the largest impact on ESG measurement and reporting over the subsequent two years.
Asset managers are aware of how difficult and unsure ESG implementation is today. However, they see huge technology-driven improvements on the horizon, suggesting that ESG integration continues to be in its infancy and there’s far more to come back.
This is the seventh a part of a series from Index Industry Association (IIA). The IIA celebrated its tenth anniversary in 2022. For more information, see Visit the IIA website.
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