Russell Investments Survey: Investment Managers Increasing Active Engagement on ESG
Investment solutions provider Russell Investments released today the results of its sixth annual ESG Manager Survey, indicating that investment managers are increasing the use of ESG integration in their investment processes, and are more frequently engaging companies on sustainability issues. The study also found, however, that most managers have yet to employ ESG or climate-related portfolio performance measures.
The study was conducted by Russell Investments’ manager-research team, who surveyed 400 asset managers globally across a broad range of asset classes, including equity, fixed income, real assets and private markets. The survey aimed to assess managers’ attitudes toward responsible investing and how firms are integrating ESG factors into their investment processes.
The survey found that ESG integration is gaining in traction broadly among investment managers, with more than three quarters of respondents reporting that they explicitly incorporate qualitative or quantitative ESG factor assessments into their investment processes. Most regions saw growth in this factor relative to last year’s survey, particularly the US, Canada and the UK, which increased by 11%, 15% and 11%, respectively.
Investment managers reported increasing the use of engagement with portfolio companies on ESG issues, with nearly all firms with AUM greater than US$100 billion reporting always or occasionally including ESG discussions in meetings with senior management, and 74% of firms with asset size less than US$10 billion doing so. Investor engagement spans asset classes, with 92% of fixed income managers also reporting regularly engage with underlying companies they invest in.
While ESG integration is clearly increasing in focus among investment managers, the Russell Investments study found that ESG accountability is lagging, with only 22% of the respondents reporting having portfolio performance measures for portfolio managers or analysts with direct ties to ESG-profile or climate-risk criteria.
Breaking down managers’ focus by ESG factor, the study found that while environmental and social factors are gaining in prominence, governance clearly remains the key factor in investors’ decision-making processes, with quality of company management a foremost consideration for managers. Overall, 82% of respondents reported that Governance impacts their investment decisions the most, compared to Environmental at 13% (9% last year) and Social at 5% (unchanged vs last year).
Yoshie Phillips, Director of Investment Research – Global Fixed Income, at Russell Investments, said:
“The results of our 2020 survey show the fund management industry continues to embrace ESG integration, even amid pandemic-related challenges and volatility. They are seeking better ESG information, deeper resources, broader consideration within investment processes and clearer regulatory standards. While governance remains the dominant factor in investment decisions, relative to environmental and social factors, the survey also reveals increasing focus on all three areas. At the same time, asset managers indicate they are seeking greater clarity of the value-add from explicit ESG integration.”
Jihan Diolosa, Head of Responsible Investing EMEA, at Russell Investments, added:
“ESG is no longer an optional ‘add-on’; it is now an essential consideration that asset managers have to incorporate into their decision-making processes. Our research shows that the investment industry is moving in the right direction, with increased support for sustainability-related initiatives and improvements around reporting practices marking important steps in the journey. Clear challenges to progress remain, particularly in certain regions. However, the broad direction of travel is clear and the asset managers who do not adapt to the changing landscape will be left behind.”