ESG News ESG: IS THE TAIL WAGGING THE DOG?
Do pension schemes rely on asset managers for ESG insight or make their manager selection based on it? Andrew Holt takes a look.
How asset owners approach environmental, social and govern- ance (ESG) issues has come under the spotlight as there are significant differences in how they address the issue. A study by consultant Chestnut Advisory says asset owners rely on asset managers for their ESG strategies. This seems an interesting insight, as should it be the asset owners who dictate their approach to sustainability issues? The study states this is happening because asset managers are ahead of the game on ESG. Chestnut Advisory’s chief execu- tive, Amanda Tepper, notes that it is asset managers, as well as con- sultants, who have developed dif- ferent investment styles in this area and formed the thriving ter- rain that ESG investing is today. But have asset managers done this because they were nudged by asset owners?
This in turn will set aside the ESG thought leader asset man- gers from the rest, Tepper said. “Over time we expect managers who are viewed as among the smartest on ESG issues to gain
an edge over their competitors with investors who value their ESG expertise.”
This contrasts with a poll last year which presented a different picture: one of asset owners believing that many asset manage- ment products use ESG as a marketing gimmick that do not deliver on their stated objectives. This highlights a clear lack of trust on ESG and has led to allegations of greenwashing amongst asset managers.
Limited practices Another, more recent survey, questions, in part, the ESG work of asset owners: revealing that there is, in fact, limited ESG practices within asset owners’ portfolios in the US and Europe – with only a quarter integrating ESG scoring into their invest- ment manager selection processes.
That said, this area of ESG is developing and there is no stand- ard approach. So, asset owners cannot be blamed for having an incoherent approach in an area that is, by definition, still pretty incoherent. In this study, asset owners said data gaps in
22 | portfolio institutional | May 2022 | issue 113
company social and environmental performance reports remain their top concern: an issue that strikes at the heart of the ESG process and why efforts to measure it lack validity.
Sustainability role
Another study stated that the majority of asset owners say environmental and sustainability considerations play a major role in manager selection, turning the findings of the first study on its head. This has asset owners shunning managers that
are not embracing the drive toward responsible
investment. What these often conflicting findings reveal is that ESG is a vitally important issue, but a lack of uniform approaches and measurements mean it is difficult to assess where we truly are in the ESG journey. For asset owners it is something of a maze. The UN Principles for Responsi- ble Investment (PRI) has identi- fied the importance of the ESG dynamic between asset owners and their external managers but has its own take on the issue: indicating it is important both parties
work together on
ESG-related investments and practices, but it is the asset owner that can shift the debate. “Once asset owners understand and can articulate their ESG val- ues and beliefs, they have a pow-
erful voice to influence the mandates of investment manag- ers,” it noted in its report. “Having a consistent ESG approach that outlines clear expec- tations is critical in allowing investment managers to regu- larly focus on ESG factors in their investment decision process.
Clear communication and transparency from asset owners to their investment managers was identified as key to increasing accountability,” the report read. In an attempt to provide a transparency roadmap on the issue, late last year the CFA Institute released its Global ESG Disclo- sure Standards for Investment Products, providing a detailed list of recommended disclosures of ESG investments. “This,” said the institute, “includes, but is not limited to, approaches that are often referred to as ESG integration, exclu- sion, screening, best-in-class, thematic, sustainability themed investing, impact investing and stewardship.” As a transparent basis for ESG investments this is a good start, but these standards, like much else in ESG, are voluntary.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60
