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Feb 10, 2021

Asset owners up focus on ESG amid pandemic, but regional differences to sustainability remain stark

Upcoming ESG approaches for equity investments include carbon and impact measurement

Many asset owners have upped their focus on ESG as a result of the Covid-19 pandemic, but major differences exist between regions on the importance of sustainability issues, according to a new study.  

Around a third (32 percent) of investors say ESG is getting ‘more focus’ from their investment professionals amid the global spread of coronavirus, notes research by bfinance, the advisory firm.

Underlining the growing belief in a link between sustainability and returns, most respondents (82 percent) think ESG integration ‘will be associated with' outperformance over the next three years.  

But the study also highlights regional differences on sustainability. Around three in five European respondents (61 percent) say ESG issues are of high importance to their investment strategy and implementation, compared with 33 percent in Asia-Pacific and 24 percent in North America. 

In fact, 30 percent of North American respondents say ESG issues are either of minor or no importance, compared with 10 percent in Europe and 5 percent in Asia-Pacific. 

Bfinance polled the views of 256 individuals, managing around $7 tn in assets, who work at asset owners such as pension schemes, foundations, insurers and family offices. Their priorities offer a useful reference point for IR professionals as they consider how to communicate on ESG issues with the market. 

The study asks how asset owners are approaching ESG specifically within equities. The most common approach is ESG integration, whereby issues are systematically included in investment decisions. Fewer than one in 10 respondents say they are not doing this or considering it. The next-most common approaches are active engagement (via asset managers) and negative screening.  

One of the biggest upcoming ESG approaches to equities is carbon reporting and measurement, according to the study. More two fifths (43 percent) of respondents say they are either planning to implement this or are considering it. The same percentage are also planning or considering the use of impact reporting and measurement on areas beyond carbon.

The growing focus on impact investing is further highlighted by the significant rise in the number of asset owners that are systematically taking into account the UN’s Sustainable Development Goals (SDGs). Of the respondents, 28 percent say they map their portfolios against the SDGs; three years ago, that figure stood at just 3 percent.

The attention of asset owners on the SDGs is mirrored by the growing number of companies that now discuss sustainability in relation to these goals, which seek to achieve bold targets by 2030 such as eradicating global poverty and guaranteeing access to safe drinking water. 

The proportion of companies that connect their business activities with the SGDs has grown from 39 percent in 2017 to 69 percent in 2020, according to a survey of thousands of issuers globally conducted by KPMG. 

In the bfinance study, asset owners say one of the main challenges related to ESG is the lack of robust data to monitor investments. The vast majority (84 percent) of respondents say getting ‘consistent ESG reporting across asset managers and asset classes’ is difficult.

‘The results show the increasing breadth, depth and complexity of ESG implementation as investors look to take a more consistent, portfolio-wide, data-grounded and – in many cases – impact-minded approach,’ says Kathryn Saklatvala, head of investment content for bfinance, in a statement.

‘Yet the advancement also brings challenges: investors with increasingly clear objectives and priorities in this space are even more frustrated by the lack of clear, consistent, standardized data on many of the key issues.’