While ESG integration seems high on the agenda of many asset owners, implementation remains a challenge when selecting and monitoring external managers. Cécile Churet, Sustainability Investing Client Specialist at RobecoSAM, researched the industry trends and concluded that there is still a long way to go.
When asked which sustainability investing approach asset owners want their external asset managers to apply, 70% indicated ‘ESG integration’, compared with 50% for screening and 25% for thematic approaches. However, this preference implies two challenges, i.e. identifying asset managers that truly integrate ESG into their investment decisions, and ensuring these aspects are incorporated in mainstream asset manager searches - and are actually implemented as intended. Churet found that while a fair amount is being done at the manager selection stage, less is done in terms of monitoring and ongoing dialogue with asset managers once they are selected.
A major challenge appears to be the appointment stage, as few SI-related aspects investigated at the selection stage are translated into formal contractual agreements. Only 6% of asset owners include reporting on portfolios’ SI characteristics in the contract clauses with their asset managers. Feedback from asset owners has been that part of the challenge of formalizing these requirements into legally binding agreements comes from legal advisers who are not convinced about ESG integration.
Similarly, less than 40% use a sustainable investment criterion as a formal component of manager performance evaluation. Two-thirds of asset owners assess managers’ ESG incorporation strategies, but less than half actually assess the quality and coverage of the ESG research used by the asset managers, or meet with their investment staff to review their SI competences.
As asset managers become more sophisticated and consider ESG issues as part of their fundamental analysis, using different sources of data and feeding them into their valuation models and investment decisions, it will become more difficult to isolate the ESG component of the investment process.
In conclusion, while ESG integration seems high on the agenda of PRI signatories, implementation remains a challenge. What’s more, these findings represent the practices of the most committed and most advanced asset owners. For much of the pension fund industry, there is still a long way to go on sustainable investment. Similar findings were observed across the whole PRI signatories’ base.
The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).
The funds shown on this website may not be available in your country. Please select your country website (top right corner) to view the products that are available in your country.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.