A study by professional services firm EY into the ESG investing practices of Canadian asset managers found a wide spectrum of ESG integration across various managers, with some reporting completely embedding environmental, social and governance factors into their investment processes and products, and a few only in the early phases of integration.
EY interviewed participants from 20 firms for the survey, with collective assets under management of over $2.5 trillion. Of those interviewed, half described themselves as fully ESG integrated across all portfolio managers and investments, 40% said they were somewhat integrated, and 10% indicated that they are in the early phases of integration.
According to the study, the primary driver for ESG integration has been client demand, with pension funds and endowments acting as the strongest drivers of the demand for sustainable investment. On the retail side, some asset managers reported that they are waiting for client demand before developing dedicated ESG funds, while high net worth clients appear increasingly interested in the purpose of wealth and are interested in investing their money for purposes beyond financial return.
The survey also explored the barriers to ESG integration, with the lack of data reported as the greatest challenge. One of the key issues mentioned by the asset managers is the lack of standardization in ESG reporting by companies creating barriers to proper analysis. Other key challenges include a lack of standardized taxonomies creating difficulties in measuring and comparing ESG impact across asset managers and against benchmarks; expanding reporting requirements, which makes it hard for less-equipped asset managers to keep up; and a lack of available talent with ESG expertise.
Other key findings from the survey include:
- ESG reporting. 90% of respondents report on their ESG efforts in some form. All of the surveyed asset managers were signatories to the UN Principles of Responsible Investing (PRI), with most reporting that reporting under the principles consumes significant time and resource commitments, with most requiring between two and five Full time employees for several weeks.
- ESG scoring and data. Each of the asset managers subscribe to at least one external data provider to support their ESG scoring, with Sustainalytics and MSCI the most commonly cited. Most respondents who have integrated ESG into their investment processes have also developed their own proprietary ESG scoring mechanisms, with a few indicating that they use alternative AI-based data sources to further support their ESG assessments, with some hoping to gain a competitive edge.
- Advisors unprepared. A key barrier to ESG investing for retail managers is a lack of advisor knowledge, with respondents reporting that advisors are unprepared to have conversations on ESG investing, even when their clients are.
Click here to view the results of the EY survey.