Although asset managers have made progress with ESG policies and procedures, there is still a glaring lack of decisive action on sustainability challenges, according to Redington.
The investment consultancy engaged with 122 managers from a variety of locations as part of its annual Sustainable Investment (SI) Survey, spanning 232 strategies and a total of £34.87 trillion in assets under management.
Nearly all managers polled now have an ESG policy that applies to the entire company, and 80 per cent have staff members specifically tasked with ESG or sustainable investment. More than half or 52 per cent of respondents claim to also offer yearly ESG training and updates to staff, while 35 per cent claim to do so at more frequent intervals.
The study contends that ESG issues frequently affect investment recommendations across the majority of asset classes. For instance, according to 78 per cent of equity managers and 84 per cent of fixed income managers, environmental concerns frequently have an impact on analyst recommendations.
Likewise, organisations have improved their ESG integration strategy as a result of the escalating client demand for ESG, with 61 per cent of managers reporting modifications over the course of the year.
Nevertheless, despite obvious positive intentions, the research also reveals that frequently these are failing to materialise in concrete action.
Notably, compared to 39 per cent in the 2021 report, 43 per cent of managers are unable to give an example of a sell decision motivated by an ESG stance in the most recent year. In contrast, 35 per cent, up from 26 per cent the year before, cannot provide evidence of an ESG-motivated buy choice. Furthermore, just 57 per cent of respondents said they have an exit strategy in place in case of poor ESG performance.
According to the survey, fewer managers are now connecting their compensation plans with sustainable investment metrics. Only 62 per cent of managers are employing this strategy, down from 70 per cent in the 2021 report.
According to Redington, in order to effectively advocate and affect change, the asset management community must work in tandem with the broader investment industry.
Redington head of manager research Nick Samuels says: “With climate change, the cost-of-living crisis and geopolitical uncertainty all at the forefront of our minds, the interconnectivity between the financial system, society and the planet are increasingly clear. For asset managers, being a responsible steward of capital means creating long-term value for clients and their beneficiaries – and one way to do so is through thoughtful engagement on material topics.
“What matters the most here is changing investment practices on the ground. So while it is encouraging to see managers making such strides in their processes and philosophies, there is a long way to go when it comes to taking actions for real-world outcomes that are truly going to move the dial on some of the most challenging sustainability issues of our time.
“While we would expect to see some variation between ambition and action, how can managers really drive the change that is needed when so many are unable to evidence specific allocation decisions that were influenced by ESG factors this past year?”
He says: “Perhaps the clearest indication that sustainable investment is truly integrated is if individuals are incentivised on it. We believe this approach has potential to drive significant progress, and so we hope to see a reversal in this downward trend next year.”
The research also analyses the outcomes of manager engagement, particularly those identified as ‘Engagements for Change’, which can be characterised as purposeful dialogue with defined objectives to positively address material risks and opportunities.
Managers classified 32 per cent of all strategy-level engagements and 22 per cent of firm-level engagements as Engagements for Change. Looking at the results of reported Engagements for Change, it is evident that firm-level approaches have more success, with engaged entities either developing credible strategies to achieve the stewardship objective or fully implementing a solution to address the issue (43 per cent firm vs. 28 per cent strategy).
He adds: “While this data exemplifies the power of the house and coordinated internal efforts to influence real-world change, most engagements for change reported do not as yet seem to result in tangible outcomes.
“This activity may be a stepping stone to later progress but, ideally, managers should have mechanisms in place to hold engaged entities to account, including appropriate escalation routes in the event of inaction or a negative response. If the existing engagement truly is a stepping stone, managers need to be able to track the later progress”.
Samuels adds: “While our survey evaluates the sustainability and stewardship efforts of asset managers, the responsibility does not lie with them alone. Through this survey, and in collaboration with our clients, partners and industry peers, we hope to catalyse the large-scale action required to solve the sustainability challenges we all face.”