The Index Industry Association (IIA) has released its ESG Global Survey of Assert Managers. IIA partnered with Opinium Research to survey 300 CIOs, CFOs, and portfolio managers from the UK, US, Germany, and France.
“Our survey seeks to help index providers better understand the needs of the asset management community and provide benchmarks and indexes that better meet their needs,” says IIA CEO Rick Redding. “Our survey results affirm that asset managers continue to prioritise ESG criteria in making investment decisions and demonstrate the managers’ desire for more, and more accurate, ESG data.”
Key findings of the report include:
- ESG focused asset managers are moving toward a broader view of Environmental factors, a widening lens on Social factors, and a new emphasis on Governance factors
- ESG asset class expansion continues, driven by significant growth in commodities
- Emerging technology such as Artificial Intelligence, Blockchain, Internet of Things, and Machine Learning are expected to help improve the timing, depth and predictive content of ESG data and metrics
The survey responses suggest that, despite significant economic volatility and political frictions, ESG’s future role in global investment portfolios continues to increase. Asset managers in France, Germany, the UK and US are ramping up their use of ESG factors. Eight in 10 (81 per cent) asset managers say ESG has become more (54 per cent) or much more (28 per cent) of a priority to their investment strategy over the past 12 months.
ESG investing remains on course to reach almost half of portfolios in two to three years’ time, and to reach 63 per cent in 10 years. That’s on par with last year’s expectations (64 per cent) but a notable rise from two years ago (52 per cent). Interestingly, ESG support is highest among asset managers in the US, where 88 per cent say it has become more of a priority.
The “E” in ESG, or environmental criteria, continues to dominate, with asset managers expanding their view on applicable environmental factors. Seventy-five percent of those surveyed stated that environmental factors should be prioritised over social or governance factors. But climate change/carbon footprint is no longer the only environmental consideration. For the first time, natural resource usage or depletion (42 per cent), sustainable supply chains (39 per cent), and resilience of physical assets to climate change (38 per cent) ranked above greenhouse gas and carbon emissions (32 per cent) in terms of importance to ESG investment strategies.
At the same time, social issues – the “S” of ESG – are becoming more influential. More than three fifths (62 per cent) of asset managers surveyed indicate that investments displaying positive social criteria are a core part of all or most portfolios. US asset managers again lead here, with 74 per cent of those surveyed much more likely to incorporate social criteria in their portfolio decisions.
Corporate governance – the “G” of ESG – focuses on what firms do, how they do it, and with whom. Asset managers are paying special attention to fair business practices (41 per cent), accounting transparency (39 per cent), and diversity among boards and leadership (35 per cent), among a host of other factors.
ESG continues to expand its influence beyond equities into fixed income and other asset classes. In the three years of the IIA survey, commodities have risen most significantly in the proportion of asset managers implementing ESG in this asset class, from 37 per cent in 2021 to 62 per cent in 2023. And 55 per cent of global asset managers expect to see the use of ESG criteria in commodities increase a lot or by a moderate amount over the next 12 months.
According to the survey, the vast majority of asset managers view the available ESG tools and metrics as fairly or highly effective. Challenges remain. Among the biggest challenges cited by global asset managers are lack of data standardisation across markets (30 per cent), insufficient quantitative data (29 per cent), and a lack of agreed ratings and methods by providers (24 per cent).
The managers see emerging technologies—analytics, Internet of Things, blockchain, AI and machine learning, and others—as offering opportunities to improve the timing, depth and predictive content of ESG data and metrics. US asset managers are especially attuned to the potential ESG applications of AI and machine learning. Almost half (48 per cent) expect it to have the biggest impact on ESG measurement and reporting over the next two years.