ESG ‘dating tips’ for asset managers
Asset owners2 play a leading role in the financial ecosystem, being the guardians of trillions of dollars in assets. As noted by the United Nations Principles for Responsible Investment (UN PRI), asset owners can be considered “universal owners” that “effectively hold a slice of the overall market, making their investment returns dependent on the continuing good health of the overall economy”3.
In support of a robust and sustainable economy many asset owners are integrating ESG into their investment decision-making. Key to this is the principal-agent relationship between the asset owner and the asset manager. The asset manager will often be implementing the ESG mandate, with the exception of those asset owners who have large in-house investment teams. Indeed, ESG investing is one source of differentiation for an asset manager in today’s competitive environment. To be successful they need to know what the asset owner is looking for.
Our 2019 ESG Global Survey found the key criteria for asset owners when choosing an asset manager for ESG investment to be:
This represents a significant change in respondents’ preferences from our 2017 survey4; where proven track record was cited by only 14% of respondents and reporting capability by 11%.
Surprisingly competitive fees did not feature in the top three criteria. However, there were some interesting regional differences. In Europe, proven track record (44%) was the top pick followed by competitive fees (41%). In North America, proven track record (52%) was followed by having a dedicated ESG investment team (39%). In Asia Pacific the key criteria for half of respondents was ESG research capability followed by track record (41%) and the ability to use smart technology (41%). In fact, fees ranked as one of the least important criteria for Asia Pacific investors and North America investors, potentially highlighting the opportunity for asset managers to optimally structure their strategies to meet owners’ needs in those regions.
Do asset owners ‘walk the talk’; in other words, do they reward asset managers with mandates specifically because of their ESG capabilities? The evidence is ‘yes’, and overwhelmingly so in Asia Pacific, with 64% of respondents saying so, well ahead of their European and North American counterparts.
In terms of the biggest challenges for asset owners, they cited the following as their main hurdles:
Our ESG survey showcases clear investor demand for the growing market of sustainable investment products. We are at a vital stage in the evolution of ESG and sustainability which asset managers can take advantage of, to show their ESG credentials and build long-lasting partnerships in a sustainable manner.
1 The ESG Global Survey 2019: Asset Owners and Managers Determine their ESG Integration Strategies. BNP Paribas and Longitude Research. Accessed at https://securities.bnpparibas.com/files/live/sites/web/files/medias/documents/esg/esg-global-survey-en-2019.pdf