ESG Report on Asset Management Industry
The Index Industry Association (IIA) has released an ESG report on the asset management industry, aiming to summarize the development of ESG and look forward to the application and innovation of ESG investment in the future.
IIA surveyed over 300 participants from European and American asset management companies, including CFOs, CIOs, and investment managers, in order to obtain their views on ESG.
Overall Development of ESG Investing
IIA believes that although the global economy had a certain impact on the market last year, the demand for ESG in the asset management industry is still ongoing. As of the first quarter of 2023, the total size of global ESG funds was $2.74 trillion, second only to the high of $3 trillion in the fourth quarter of 2021. Among them, ESG funds in the European market saw the highest growth in the first quarter, reaching $32.3 billion.
81% of asset management companies stated that ESG has become a priority in their investment strategy over the past 12 months. Respondents expect that the proportion of ESG factors in the overall asset management portfolio will reach 62.6% in the next decade.
In terms of the application of ESG tools and indicators, over 85% of respondents have effectively applied them in their work, with environmental tools accounting for a higher proportion than social and governance, reflecting a higher level of familiarity among asset managers. Some respondents believe that lack of rich ESG asset categories, lack of standardized and quantitative data, and insufficient disclosure of company ESG information are challenges faced in investing.
Development of Environmental, Social, and Governance Factors
The ESG report on asset management industry shows that the asset management industry has also made new developments in ESG’s environmental, social, and governance factors. 75% of respondents stated that environmental factors will be given priority consideration, and in addition to climate change and carbon emissions, natural resource depletion (42%), sustainable supply chain (39%), climate change adaptation (38%), and biodiversity (30%) are all becoming new indicators. This means that asset management companies have adopted a more detailed perspective on the environmental factors.
In the social aspect, 62% of the respondents have taken it as the core consideration of the investment portfolio, with American asset management companies accounting for a higher proportion. Among social factors, supply chain management (38%), safety and quality (37%), diversity and inclusivity (34%), and data protection (32%) rank high. At the implementation level, 54% of asset management companies believe that it is difficult to evaluate the social performance of investees, while 56% believe that these evaluations are difficult to meet investors’ expectations for social performance.
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In terms of governance, 67% of companies incorporate it into their investment strategies, with fair business standards (41%), accounting transparency (39%), and board diversity (35%) being the main focus goals. In terms of measuring governance factors, 38% of respondents hope to have relevant ESG indices to choose from, and 37% hope to obtain ESG tools to measure governance risks of investees.
ESG Outlook for Asset Management Industry
In addition to the development of ESG in the stock and bond markets, IIA found that ESG investment in the commodity market is rapidly increasing, with the proportion of related companies increasing from 37% in 2021 to 62% in 2023. As an essential material for energy transformation, commodities are directly related to supply chain decarbonization and natural resource conservation. 55% of respondents expect ESG investment in the commodity sector to increase in the next year.
In terms of ESG innovation, respondents believe that index suppliers (79%) and regulatory agencies (75%) will become important forces driving the subsequent development of ESG, such as providing ESG related indices and establishing new information disclosure frameworks. These actions will enhance information transparency and promote ESG investment in the asset management industry.
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