ESG Factors are Ramping Up Among Global Investment Portfolios

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by | Jul 3, 2023

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Calculator with pen and graph paper

(Credit: Pixabay)

Environmental, social, and corporate governance factors are becoming increasingly important in global investment portfolios. Even amid economic volatility and political frictions, asset managers across the globe are using ESG in their investment strategy and understand its growing importance. 

In fact, 81% of asset managers recently said ESG has become more (54%) or much more (28%) of a priority to their investment strategy over the last year, according to the Index Industry Association’s third annual ESG Global Survey of Asset Managers. The report comes as new financial disclosure standards are coming out and demanding more ESG reporting alongside financial statements. 

The IIA, in partnership with Opinium Research, has conducted its assessment of ESG trends among asset managers since 2021, surveying more than 300 CIOs, CFOs, and portfolio managers from the United Kingdom, United States, Germany, and France. The survey queried the executives on several topics, including general investment outlook, market issues, data sufficiency and challenges, policy impact, and emerging technologies.

“Our survey results affirm that asset managers continue to prioritize ESG criteria in making investment decisions and demonstrate the managers’ desire for more, and more accurate, ESG data,” IIA CEO Rick Redding said in a statement.

Over the next two to three years, ESG investing is on track to reach almost half of portfolios, and it will continue to reach 63% of portfolios in 10 years’ time. U.S. asset managers have the highest interest in ESG support, with 88% who said it has become a priority, the survey found.

The majority – 75% – of asset managers in the survey said environmental factors should be prioritized over social or governance factors, proving the dominance of the “E” in ESG. And asset managers are also expanding what they consider to be environmental factors. For example, climate/carbon footprint is no longer the only environmental consideration, with asset managers considering “natural resource usage or depletion (42%), sustainable supply chains (39%) and resilience of physical assets to climate change (38%) ranked above greenhouse gas and carbon emissions (32%) in terms of importance to ESG investment strategies.”

Social issues are also gaining influence, with 62% of respondents indicating investments displaying positive social criteria were a core part of portfolios. Nearly three-fourths (74%) of U.S. asset managers were much more likely to incorporate social criteria in their portfolio decisions. Within corporate governance, asset managers were paying attention to fair business practices (41%), accounting transparency (39%), and diversity among boards and leadership (35%).

With the huge rise in interest in ESG factors, measuring tools are also becoming more important. And while the majority of survey respondents viewed ESG tools and metrics as fairly highly effective, the biggest challenges cited were a lack of data standardization across markets (30%), insufficient quantitative data (29%), and a lack of agreed ratings and methods by providers (24%). Fortunately, asset managers see many opportunities to overcome these challenges with technology, including AI, in which U.S. respondents were particularly bullish.

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