Equity managers below average on ESG issues

Few Australian equity managers fully integrate environmental, social and governance (ESG) issues into their investment analysis, according to new research by Mercer Investment Consulting.

The study looked at 27 high profile managers and found that while almost all scored at least average marks when it came to engaging with companies on corporate governance issues, relatively few scored the same regarding environmental and social issues.

Mercer claimed this indicated managers were not basing investment decisions on ESG issues to any significant extent.

Mercer senior associate and Australian responsible investment specialist Geoff Stewart said corporate governance issues were now virtually universal, but managers were slower to engage with companies on environmental and social issues, with the exception of those factors likely to affect share prices.

“We do however expect that ESG issues will have a greater influence on mainstream investment decisions as awareness of the nature of ESG risks increase, and it is more widely appreciated that these risks can potentially impact investment returns,” he said.

Stewart said these risks included a company’s pollution emissions, breaches of codes and workplace safety issues.

Mercer undertook the investigation after receiving multiple requests from its clients, including superannuation and charitable organisations, asking for help in drafting responsible investment policies.

Stewart said the results had been revealed to its clients and imagined they would have an impact on which manager the client chose to use in the future.