Overcoming lack of consistency in ESG scores is a challenge when incorporating ESG data, ratings and research into the investment decision-making process
Accessing information and data is a stumbling block when implementing ESG investments
About half of institutional and wholesale investors globally say that a lack of robust data is holding back their organisations’ further adoption of ESG, according to a new global study by Capital Group.
Capital Group’s ESG Global Study 2021 surveyed 1,040 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 across 16 different countries. The study seeks to identify the key drivers behind how these professional investors are integrating ESG into their operating models and where the challenges lie.
The global study found three-quarters (75%) of those surveyed use active investment decisions to ensure ESG factors are integrated into their funds and two-thirds of global investors (67%) said integration is the preferred ESG implementation strategy. Thinking about how asset managers can most effectively engage investee companies on ESG, nearly half of those surveyed pointed to exercising voting rights and monitoring and reporting to assess outcomes (both 45%) as key engagement tools. Slightly more (46%) cited the importance of having regular meetings with senior executives at investee companies.
More than half of respondents globally (53%) said lack of consistency in ESG scores from ratings firms is a stumbling block when incorporating research data into their investment decision-making process. More than a quarter (27%) ranked difficulties accessing the information they need as the leading challenge they face.
Jessica Ground, Capital Group’s Global Head of ESG, explains: “ESG is an increasing area of focus for institutional and wholesale investors globally. While investors appreciate the importance of ESG integration – and qualitative analysis and engagement by active fund managers – they also report that the lack of robust and consistent data is the main challenge when investing in ESG. It’s understandable that as ESG becomes more important to these investors, the desire to be rigorous in their assessment of ESG grows.”
When asked what would enhance their organisations’ focus on sustainable investing, nearly half of investors (49%) highlighted the need for greater transparency and consistency in fund reporting frameworks. Looking at how these challenges can be overcome, about four in 10 investors globally (43%) said consistent reporting is the top driver for better ESG analysis and implementation. This is closely followed by greater cross-industry analysis of ESG factors in portfolios, and automated analysis tools such as artificial intelligence, which would be welcomed by more than a third of investors (37% and 34%, respectively).