ESG top concern for asset owners and managers

Global asset managers have voted for governance as the most dominant ESG factor to influence their decision-making, while Australian and New Zealand asset owners see environmental issues as the most pressing concern, according to survey results from Russell Investments.

 The seventh-annual Russell Investments ESG Manager Survey analysed the practices and perspectives of 369 asset manages that represent more than A$100 trillion in global assets under management across a range of asset classes. It assessed the attitudes toward responsible investing and how firms are integrating ESG factors into their investment processes.

The survey found asset managers are taking active ownership of their investments to reflect important ESG issues, as 90% of respondents include ESG in discussions with senior management about the companies they invest in.

The results of the survey also revealed that 82% of respondents explicitly incorporate qualitative or quantitative ESG factor assessments into their investment processes, which increased 4% from last year. This is also reflected in almost half of the total respondents that noted ESG factors such as climate change influence their investment decisions.

“In last year’s study, we noted that ESG is no longer an optional ‘add on’ but rather an essential part of decision-making,” Jihan Diolosa, Head of Responsible Investing at Russell Investments, said.

“Asset managers have certainly taken this to heart, which is reflected in the improvements we have continued to see over the last twelve months. We are also starting to see the potential beginnings of an evolution in how managers prioritise with several regions, most notably Continental Europe and Canada, increasingly focusing on environmental factors as a result of the priorities being set by their clients.

“With climate change in particular proving such a critical issue, managers will have to demonstrate a clear focus and active efforts to make improvements in this area or risk being left behind.”

The study also showed improvements in the approaches of Australian and New Zealand asset managers to integrating ESG into their investment practices with 95% doing so in 2021, jumping by 2% from 2020 and 9% from 2019.

“ESG integration within asset management investment and business practices in Australia and New Zealand continues to evolve quickly, as ESG concerns – particularly “E” issues and climate risk – sit front and centre in the minds of local asset owners,” James Harwood, Global Equity Portfolio Manager at Russell Investments, said.

Harwood also said more asset owners are demanding insight into how their assets will be managed in a net zero world, as 87% Australian and New Zealand asset managers signalled climate risk and environmental issues as the concerns raised most frequently by their clients.

“For savvy managers, it will pay to demonstrate to clients how decarbonisation targets will impact the value of their assets, and the level of management required to transition their assets to this new reality,” Harwood said.