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Asset managers make progress on ESG efforts but key areas for improvement still

New research from Redington shows that asset managers’ engagement and stewardship records are not keeping pace with their ESG commitments.

Recent research from Redington shows that despite important progress in several key areas, asset managers are still yet to truly walk the walk when it comes to their sustainable investment actions.

As part of its annual Sustainable Investment Survey, Redington questioned 112 asset managers from across the globe, covering 220 strategies and an aggregated $10trn in combined assets under management.

This year’s results include a number of key indications that asset managers have continued to improve the integration and consideration of sustainability factors within their operations.

Firmwide responsible investment (RI) policies have now become the norm, with 99% of surveyed managers stating they have these in place. The number of asset managers with dedicated RI headcount has increased meaningfully by 15% year-on-year. And, Redington believes more importantly, the number of firms linking remuneration to the integration of sustainability risks also increased by a fifth, now covering 70% of firms.

The number of firms who completed TCFD reporting also rose from only 28% in 2020 to 45% in 2021.

However, Redington believes there are a number of areas where managers are still yet to make meaningful progress.

The survey found that while more than 90% of asset managers state they integrate ESG considerations into their fundamental research, only 74% and 61% of asset managers could evidence ESG considerations influencing respective buy or sell decisions over the past six months.

This is despite 78% of asset managers responding to say they expect ESG integration to have an additive impact on financial performance.

Paul Lee, Head of Stewardship & Sustainable Investment Strategy, at Redington, commented: “Given that almost all asset managers, across most asset classes, indicate that ESG factors influence their investment decisions at least sometimes, we would like to see these words being backed up more substantially by investment actions.

“Setting policies and processes is just the beginning. What’s really needed to further the sustainability agenda within the asset management community is a tangible link between ESG analysis and investment decisions.”

It also questioned asset managers on their stewardship and engagement policies, finding an increased emphasis on thoughtful, results-oriented stewardship. Results showed that 83% of respondents reported having a firm-wide stewardship and voting policy and, on average, this policy covered over 88% of assets under management.

However, Redington again found evidence that such progress on policies was not always being backed up by tangible actions. For example, of those asset managers who stated they had a stewardship and voting policy covering all of their AuM, only 44% of those voted on 100% of resolutions and almost 10% did not exercise any voting rights at all.

Moreover, when analysing the level of the engagement efforts undertaken by different strategies, Redington asked asset managers to differentiate between deep engagements, which involve at least three back-and-forth dialogues between a manager and company, and light engagements, which consist of fewer than three dialogues.

The results show that this ‘quality’ of engagement varies drastically between asset classes.

For example, while over 60% of real asset engagements were considered deep engagements, this compared to just 15% of equity engagements. Responses from credit managers meanwhile showed that on average they were not undertaking any engagement across 75% of their overall portfolios.

Nick Samuels, Head of Manager Research at Redington commented: “Engagement is an incredibly powerful catalyst for positive and sustainable change. While it’s encouraging to see indications of a high level of thoughtfulness on the part of real asset managers, we would expect a higher proportion of deep engagements across equity strategies, too – especially given the asset managers’ level of influence as shareholders.

“It’s particularly surprising to see such a low proportion of credit portfolio holdings – 25% on average – facing engagement from asset managers. Credit investors are often uniquely equipped to be able to shift attitudes and practices. We would like to see them make full use of this influence and engage with borrowers to drive change on material ESG risks and opportunities, particularly at initial issuance.”

Overall though, Redington believes that the current picture is a positive one. Samuels points towards increased industry collaboration, alongside a greater proportion of firms integrating ESG considerations and supporting this with alignment, incentivisation and public disclosures, as clear signs of progress being made.

“As stewards of the world’s capital, asset managers are in a prime position to maintain dialogues and positively influence a broad range of stakeholders. It’s therefore very reassuring to see the formation of industry partnerships and asset managers seeking to engage on sustainability topics with a broad range of key stakeholders beyond the companies they’re invested in. Fortunately, simple characteristics such as having a firmwide RI policy and being a signatory to the PRI are also now the norm.

“Nevertheless, we recognise that these are largely self-reported datapoints and that there remains a duty on us to not only work with asset managers to drive progress, but to sustain our scrutiny of the robustness of these claims on behalf of our clients.

“By using this information to hold asset managers to account – and in collaboration with them, our partners, clients, industry peers and policymakers – we hope to continue to highlight progress being made and help change our industry for the better.”

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