Russell Investments: ‘Governance’ remains dominant consideration for asset managers as they increasingly amplify ‘environment’ and ‘social’ factors
Russell Investments: ‘Governance’ remains dominant consideration for asset managers as they increasingly amplify ‘environment’ and ‘social’ factors
- Europe leads with 97% of asset managers surveyed incorporating ESG factor assessments in their investment process
- Environmental considerations most important among European asset managers vs peers from other regions
- More than 90% of fixed income managers using bondholder engagement for greater ESG insig
Increasing numbers of investment firms are incorporating additional ESG metrics into their investment processes, while also expanding the amount of resources dedicated to responsible investment, according to a major new survey of asset managers conducted by Russell Investments.
Russell Investments’ sixth annual ESG Manager Survey analyses the practices and views of 400 asset managers globally across a broad range of asset classes (including equity, fixed income, real assets and private markets) to assess attitudes toward responsible investing and how firms are integrating ESG factors into their investment processes.
The survey, conducted by the firm’s manager-research team, finds that asset managers are increasing the extent to which they incorporate ESG-specific considerations into their investment activities. 78% of managers surveyed globally now explicitly incorporate qualitative or quantitative ESG factor assessments into their investment processes (an increase of 5% compared to last year).
Indeed, almost all regions surveyed as part of the Russell Investments study showed progress in the extent to which ESG considerations are regularly embedded into investment processes. In particular, Europe cemented its leadership in ESG integration with 97% of regional asset managers embedding ESG factors into their investment processes, followed by Australia and New Zealand (90%). The U.S. (+11%) and the UK (+11%) showed the strongest growth since last year’s survey.
The gap between Europe’s leadership and other regions is reflected in the number of resources exclusively dedicated to ESG. 90% of European asset managers have professionals who spend more than 90% of their time on ESG-specific matters, which is at least 20% more than peers from other regions and a 22% increase over last year.
Governance remains the critical consideration for asset managers, with 82% of respondents identifying this as the ESG factor with the most impact on their investment decisions, reflecting the importance of company management in delivering long-term enterprise value.
However, environmental issues are becoming more pronounced in asset managers’ thinking. This is especially true for Europe, with this year’s survey showing over 100% increase in the number of regional managers identifying environmental considerations as the factor that most impacts their investment decisions compared to 2019; almost twice as much as the second-best ranked, Canada.
Overall, engagement was cited as the most frequent source of ESG-related information. Notably, 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 Russell Investments study also identifies that an increasing number of asset managers are now using external ESG data providers to supplement their in-house views, reflecting growing recognition among the asset management community of the importance of ESG integration when analysing investment opportunities.
Commenting on the findings of the 2020 ESG Manager Survey, Yoshie Phillips, Dctor of Investment Research – Global Fixed Income, said:
“The results of our 2020 survey show the fund management industry continues to embrace ESG integration, even amid pandemic-related challenges and volatility. They are seeking better ESG information, deeper resources, broader consideration within investment processes and clearer regulatory standards. While governance remains the dominant factor in investment decisions, relative to environmental and social factors, the survey also reveals increasing focus on all three areas – particularly in Europe, where environmental considerations doubled from the previous year’s survey. At the same time, asset managers indicate they are seeking greater clarity of the value-add from explicit ESG integration.”
Martijn Kuipers, Managing Director Northern Europe, added:
“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. 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. Clear challenges to progress remain, particularly in certain regions. However, the broad direction of travel is clear and the asset managers who do not adapt to the changing landscape will be left behind.”