The lack of robust data is the most significant barrier to ESG adoption, according to half of global investors a new Capital Group study reveals.
Capital’s ESG global study 2021 polled 1,040 global institutional and wholesale investors from 16 countries, including pension funds, family offices, and insurance companies, as well as fund of funds, retail/private banks, and financial advisors. It found that roughly half of institutional and wholesale investors globally say a lack of robust data is holding back their organisations’ further adoption of ESG. The study aims to identify the key drivers behind how these professional investors are incorporating ESG into their operating models, as well as the challenges they face.
According to the study, three-quarters (75 per cent) of those surveyed use active investment decisions to ensure ESG factors are integrated into their funds, and two-thirds (67 per cent) of global investors say integration is the preferred ESG implementation strategy. When asked how asset managers can most effectively engage investee companies on ESG, nearly half of those surveyed named exercising voting rights and monitoring and reporting to assess outcomes as key engagement tools (both 45 per cent).
A slightly higher proportion (46 per cent) emphasised the importance of meeting with senior executives at investee companies on a regular basis. More than half of global respondents (53 per cent) said a lack of consistency in ESG scores from ratings firms is a barrier to incorporating research data into their investment decision-making process. More than a quarter (27 per cent) said the most difficult challenge they face is getting access to the information they need.
When asked what would improve their organisations’ focus on sustainable investing, nearly half (49 per cent) of investors cited the need for greater transparency and consistency in fund reporting frameworks. When asked how these challenges can be overcome, nearly four out of ten global investors (43 per cent) said consistent reporting is the most important driver of better ESG analysis and implementation. More cross-industry analysis of ESG factors in portfolios, as well as automated analysis tools such as artificial intelligence, would be welcomed by more than a third of investors (37 per cent and 34 per cent, respectively).
Capital global head of ESG Jessica Ground says: “ESG is an increasing area of focus for institutional and wholesale investors globally. While investors appreciate the importance of ESG integration – and qualitative analysis and engagement by active fund managers – they also report that the lack of robust and consistent data is the main challenge when investing in ESG. It’s understandable that as ESG becomes more important to these investors, the desire to be rigorous in their assessment of ESG grows.”