*Three years in review*
The sustainable investment (SI) pendulum appears to be swinging backwards this year. Criticism from politicians and journalists – some warranted, some less so – has put the idea of ‘ESG investing’ on the back foot. The asset management industry hasn’t helped itself, with a tendency to overstate what it’s actually achieved in this area – so-called ‘greenwashing’. We identified some evidence of that in last year’s survey and, unfortunately, we’ve seen it again this year.
So far, the swing of the pendulum hasn’t changed the public statements of commitment in this area. In fact, firmwide SI pledges continue to strengthen, even from their already high starting point. Firmwide SI policies are now commonplace, and the asset management hiring spree continues apace.
Evidence of firmwide commitment
The sustainable investment pendulum appears to be swinging backwards this year.
Being a UNPRI signatory, once a clear sign of commitment, is now so universal to be meaningless in asset manager due diligence. However, as the PRI ratchets up its expectations of signatories, it may again become a badge that demonstrates true credibility.
Perhaps the clearest indicator that SI is actually integrated is if individuals are incentivised on it. So it’s disappointing to see a marked decline in the number of asset managers reporting that they incentivise their teams in this way, particularly after the notable improvement on this measure last year. The managers who’ve responded to our survey aren’t identical year on year, which may provide a partial explanation for this, but it’s a highly discouraging result nonetheless. Several respondents who confirmed alignment of remuneration last year have responded negatively this year. We’re actively engaging with these managers to understand the reasons behind this change.
Perhaps the clearest indicator that SI is actually integrated is if individuals are incentivised on it.
UNPRI signatory
The asset manager has remuneration policies in place which support the integration of sustainability risks
A further question to identify whether there’s substance to asset managers’ claims is to request specific examples of situations where ESG criteria have driven particular buy or sell decisions. It’s therefore troubling that not all managers can do so, and still more concerning that the number who can has fallen year-on-year.
Evidence of ESG integration
Again, the data could be influenced by a change in respondents; however, the outcome is still underwhelming. It adds credibility to the concern that, at least for some asset managers, the term ‘ESG integration’ is more of a marketing phrase than something that’s delivered in practice.
Investing sustainably requires not only the integration of ESG factors into the investment process, but also stewardship, engagement and making use of shareholder rights. The UK Stewardship Code has been live for a few years now, and its broader definition of stewardship – particularly its focus on the outcomes of stewardship activity – is having an impact on the industry. The recent research carried out for the Code’s owner, the Financial Reporting Council, may have been slightly self-serving when it found “material changes of practice [notably] in areas of governance and resourcing”. But our survey certainly corroborates the increase in resourcing.
Dedicated headcount to stewardship/engagement
Engagement is 'X' to this strategy
Our survey also reveals a heightened recognition of the importance of engagement. But just as with integration, we need to get underneath the headlines of what is promised by way of stewardship and look at what is actually done in practice – and at what is fundamentally delivered. As we discuss later, there’s evidence of another gap between rhetoric and reality.
This year’s survey highlights a combination of positive and negative themes from the asset management industry, all pointing to the need for more focus and attention. As consultants, a large part of our role involves helping clients look beyond the marketing spin to see what’s happening beneath the surface. And if our survey results tell us anything, it’s that we’re likely to have a busy year ahead.
