Study finds nearly two-thirds of investors globally prefer using active funds to integrate ESG
Nearly two-thirds (63 per cent) of investors prefer using active funds to integrate ESG, with equities (80 per cent) over bonds (58 per cent) being the most popular asset classes globally to gain ESG exposure, according to a new study by USD2.7 trillion Capital Group.
Capital Group’s ESG Global Study 2022 surveyed 1,130 global institutional and wholesale investors, including pension funds, family offices and insurance companies, as well as fund of funds, retail/private banks and financial advisors, located in 19 markets around the world. This is the second annual study that seeks to identify the key drivers behind how investors are integrating ESG and where the challenges lie.
“ESG adoption rates appear to be firmly embedded among professional investors globally, with a growing preference for active managers to make the critical investment decisions,” says Jessica Ground, Global Head of ESG, Capital Group. “This preference underscores the complexity of assessing ESG issues and that reducing them to a single ESG score cannot capture nuanced company evaluations. Investors are hence turning to active managers that can focus on deep proprietary research, robust monitoring systems and engagement to analyse companies. At Capital Group, we understand our fiduciary responsibility to consider all material factors in assessing the merits of an investment. ESG issues are critical factors in companies’ long-term outlooks and are therefore critical to our investment research and analysis.”
ESG adoption is now widespread, the firm writes, with the proportion of ESG users jumping to 89 per cent, up from 84 per cent in 2021. Europe boasts the highest percentage of ESG users (93 per cent), while Asia-Pacific saw the largest increase in ESG users of any region over the past year (to 88 per cent from 81 per cent in 2021).
Among those surveyed globally, meeting client needs (27 per cent) and making a positive impact (25 per cent) are the most-cited motivations for adopting ESG. However, North American investors attach much more weight to meeting client needs (42 per cent), while European investors are most driven by making a positive impact (28 per cent). Among the three regions, Asia-Pacific investors cite improving performance (21 per cent) as a primary reason for ESG adoption.
The survey also found that, compared to those in other regions, more Europeans consider ESG to be “central” to their investment approach (31 per cent vs. 26 per cent globally), while investors in North America have the least conviction in ESG, with less than one in five reporting that ESG is central to their investment approach (18 per cent). Globally, almost four in 10 (39 per cent) agree that a lack of product innovation is, in part, holding back greater ESG adoption, and ESG integration remains the most used implementation strategy (59 per cent) by investors.
Environmental focus is overshadowing the S in ESG globally
· Half (50 per cent) of the investors surveyed say a fund’s ability to meet the United Nations’ Sustainable Development Goals (SDGs) is an important consideration when making fund selections.
· Almost two-thirds (64 per cent) of them believe that helping companies transition to a green future is key to solving the climate crisis.
· The E of ESG continues to dominate allocation preferences with an increase of share from 44 per cent in 2021 to 47 per cent in 2022.
· However, 41 per cent of investors expressed concern that social issues, the S of ESG, are being overlooked in favour of climate issues.