Asset owners welcome ESG regulatory guidance

Industry rules tied to environmental, social and governance (ESG) disclosure and investment processes aren’t yet streamlined around the globe, but most asset managers are optimistic about their potential.

The vast majority of respondents (82%) to FTSE Russell’s annual sustainable investment survey for 2021, released Thursday, said they supported sustainable guidance if it enabled consistent regulation of ESG practices.

More than half (60%) said “regional inconsistencies” in such guidance is a concern, and only 15% dismissed regulation as simply a constraint.

The survey noted that 84% of asset owners said they’re either evaluating or implementing sustainable investment in their portfolios — a huge jump from 53% in 2018, and higher than 72% a year ago.

The region with the greatest percentage of ESG strategy users was Europe, the Middle East and Africa (97%, up from 72% in 2018), but growth in adoption was more notable in North America (68%, up from 39% in 2018).

In Canada (for which the sample size was smaller than desired), 70% of those surveyed had adopted sustainable investment. Nineteen percent were evaluating their options, and 11% had no plans.

In the U.S., responses were more varied: 45% were implementing, 11% were evaluating, 13% had evaluated but not acted, and 7% planned to look into ESG strategies. Twenty-four percent weren’t adopting sustainable investment.

Globally, asset owners that had implemented ESG considerations primarily did so for public equities (46%). That compared with 35% for fixed income, 27% for private equity, 26% for infrastructure, and 25% or less for real estate and multi-asset classes.

In total, 64% of those polled cared about mitigating long-term risk through ESG strategies. Other top factors that encouraged sustainable investment included avoiding reputational risk (57%), doing societal good (52%) and achieving better risk-adjusted performance (48%).

Most asset owners (60%) said addressing social themes such as diversity and inclusion, human rights, customer responsibility and social impact was now a priority. Among the 40% who didn’t hold this view, the quality of ESG data was the main barrier.

Indeed, lack of standardized data remains a top barrier for ESG integration generally, with 59% of respondents listing it. There were more than a dozen other hurdles, from concerns about financial performance (32%) to costs (29%), as well as lack of access to products that match portfolio objectives (23%).

“Although the headline numbers we cite in our research show widespread adoption of sustainable investment, the pace of evolution still varies across asset classes, geographies and by asset owner size,” the report said.

For owners with assets under management of $1 billion or more, seven in ten were concerned about managing long-term investment risk. A much lower percentage (42%) of those with less than $1 billion cited that concern.

Nonetheless, “we can conclude that sustainable investment for asset owners today is indeed a maturing story — with a positive outlook,” said Sylvain Chateau, global head of SI product management with the London Stock Exchange Group, in the report’s introduction.

He also pointed to “a narrowing of the gap between evaluation and adoption levels reported by asset owners” across different geographies. (Read the full report.)

In recent months, other surveys and events have looked at whether the sustainability space is inclusive enough and at what support fund managers are seeking so they can avoid greenwashing fears.

The FTSE Russell survey was conducted in partnership with New York-based Radius Global Market Research between February and April 2021 and included investment professionals with 179 global asset owners.