ESG engagement growing among investors

The number of investment firms incorporating environmental, social and governance (ESG) metrics into their decision-making worldwide has increased over the last year, an annual survey by Russell Investments has uncovered.

The global findings show that 78% of asset managers now explicitly incorporate qualitative or quantitative ESG factor assessments into their investment processes, which is an increase of 5% when compared to last year.

Rising engagement was found across almost all regions, particularly in the US, Canada and UK, which reported growth of 11%, 15% and 11% in the number of asset managers regularly embedding ESG considerations respectively.

Governance remains the critical consideration, with 82% of respondents identifying this as the ESG factor with the most impact on their investment decisions, reflecting the importance of delivering long-term enterprise value.

This year's survey also found a 4% increase in the number of managers identifying environmental considerations as the factor that most impacts their investment decisions.

“ESG is no longer an optional 'add-on'; it is now an essential consideration that asset managers have to incorporate into their decision-making processes,“ said Jihan Diolosa, head of responsible investing for EMEA at Russell Investments.

“Our research shows that the investment industry is moving in the right direction, with increased support for sustainability-related initiatives and improvements around reporting practices marking important steps in the journey.“

The latest survey sought the views and practices of 400 asset managers across a broad range of asset classes, including equity, fixed income, real assets and private markets.

Proactive engagement has become a particularly key feature among fixed income managers, with 92% now stating that they regularly engage with the underlying companies they invest in.

An increasing number of fixed income managers, for example, report using bondholder engagement as a way to gain greater insights into the underlying companies or entities, improve transparency and influence business practices.

The survey also found that investment firms are also expanding the amount of resources dedicated to responsible investment, and that more are now using external ESG data providers to supplement their in-house views.

“The results of our 2020 survey show the fund management industry continues to embrace ESG integration, even amid pandemic-related challenges and volatility,“ said Yoshie Phillips, director of investment research for global fixed income at Russell Investments.

They are seeking better ESG information, deeper resources, broader consideration within investment processes and clearer regulatory standards.“