ESG adoption barriers become ‘less pronounced’
A new report from Capital Group has observed broad industry progress in overcoming challenges that previously deterred investors from adopting ESG strategies.
The asset management firm’s ESG Global Study, which surveyed 1,130 professional investors in 25 countries, explores the attitudes towards and adoption of ESG investment.
Capital Group found that while investors are continuing to grapple with obstacles such as data, regulation, disclosures and performance, these persistent problems have become less pronounced today than two years ago.
The quality of ESG data remains the most significant concern, with 54 per cent of global investors stating that consistency and reliability of data is still a very challenging issue for their ESG adoption. However, this was down from 62 per cent two years ago.
Less than half (46 per cent) of investors surveyed have concerns about how ESG could impact investment performance, compared to more than half (54 per cent) two years ago.
The number of investors, which describe the complex regulatory landscape as very challenging, is slowly decreasing, from 50 per cent two years ago to 47 per cent today.
With a lack of industry-wide definitions of ESG, 39 per cent of institutional investors have formed their own ESG definitions to ensure consistency across teams. Additionally, more than a third have created their own in-house approach to categorising ESG funds.
“It is encouraging to see signs that some longstanding barriers to ESG adoption, like data and definitions, are starting to diminish as the more investors know about ESG, the more they are finding proactive ways of dealing with its challenges,” said Jessica Ground, global head of ESG at Capital Group.
While these obstacles have become more achievable to investors, concerns surrounding greenwashing have grown.
Nearly 60 per cent see it as a grave challenge today, a much higher proportion of the 39 per cent which saw it as an obstacle two years ago.
However, the study noted: “The rise in greenwashing concerns does not necessarily mean the problem is getting worse. It may reflect the heightened visibility of the issue amid increasing regulatory scrutiny and media reporting.”
The Responsible Investment Association of Australasia (RIAA) recently revealed that the threat of greenwashing is deterring over half (62 per cent) of investors, up from less than a quarter (23 per cent) in the previous year.
More broadly, Capital Group saw global ESG adoption grow to 90 per cent, largely driven by the 57 per cent of global respondents who think incorporating ESG analysis can uncover attractive investment opportunities.
Equities remain the most popular asset class for implementing ESG at 81 per cent, followed by fixed income at 58 per cent, and alternatives at 44 per cent.
AUTHOR
Jasmine Siljic
Recommended for you
Bennelong Funds Management chief executive John Burke has told Money Management that the firm is seeking to invest in boutiques in two specific asset classes as it identifies gaps in its product range.
Responsible investment performance concerns have lessened as the market hits $1.6 trillion in AUM, according to RIAA’s annual report, but greenwashing fears among asset managers are on the rise.
Research by Morningstar has found fixed income funds are bucking a general trend around managed fund fee dispersion with a smaller fee dispersion compared to equity ones.
As investors seek to diversify their portfolios, the naming of bond labels has broadened out to include green, social and impact bonds, according to the annual RIAA report.
