Investors are increasing their pressure on companies over environmental, social and governance (ESG) issues, though their actual investment strategies may trail behind their publicly stated good intentions.
A new survey finds that almost half of the top 50 investors have gone public with their ESG strategy through the publication of so-called “position papers”, underlining their commitment to a change in investment strategy.
They have also signed up in large numbers to abide by the guidance of campaign bodies such as the Principles for Responsible Investment (PRI). They are also committing to other advice such as that offered by the G20 Task Force on Climate-related Financial Disclosures and the Workforce Disclosure Initiative.
But action on the actual allocation of resources may not match the talk. SquareWell, advisers to companies on ESG matters, points to figures showing that that there is $30.7trn in assets allocated to sustainable assets, according to the Global Sustainable Investment Review. PRI signatories currently have around $89.6trn under management.
‘A significant shift’
That said, SquareWell believes there is progress under way. Edouard Dubois, a corporate governance specialist and partner at SquareWell, says there has been a “significant shift” among investors in recent years. Asset managers are starting to build portfolios, numerous academic studies have supported the idea that responsible investment is good for risk management while not causing a loss in performance, and regulators have been pushing for change.
“It’s really putting all these factors together, which explains why now, I would say, we definitely see a strong momentum behind responsible investment,” says Dubois.
As for the total allocation assigned to sustainable assets, Dubois says though there is a mismatch, the trend is a good one. Sustainable assets may stand at just $30.7trn last year, but that’s a big lift on 2014 when the figure was $18.3trn. “A clear sign that things are changing,” says Dubois.
ESG engagement
SquareWell’s research found the trend is supported by other activity. Of the top 50 asset managers, 64% have signed up to support the TCFD, while a fifth are now committed to the Workforce Disclosure Initiative, a project only launched in 2017.
SquareWell says almost 80% of asset managers now engage with investee companies on ESG matters, while 60% produce engagement reports to demonstrate their activities. A whopping three-quarters of assets managers now have stewardship teams dedicated to ESG engagement.
This combined effort has implications for companies and boards. “They have to be aware that engagement is going to increase and that shareholders are becoming more vocal and we see more who will name and shame companies,” says Dubois.
And it’s not just the big investors. Dubois says “mid-stream” asset managers are becoming more active. That means companies may need to change their approach to ESG strategy. He suggests they should be building relationships with long-term investors long before any troubles arise. If they wait until a crisis, he adds, “it may be too late”.
