Pension Funds Seek ESG-Conscious Money Managers, Survey Shows

Pension funds and insurers no longer look for just financial performance from their money managers, but also solid ESG credentials, according to a survey of institutional investors with more than $7 trillion in assets.

Source: Bloomberg | Published on February 8, 2021

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More than 60% of respondents in the global poll by investment consultancy Bfinance said they were unlikely to hire an equity manager who isn’t a signatory of the Principles for Responsible Investment, the world’s biggest industry body for sustainable investing.

About a third said they wouldn’t appoint a hedge fund manager that lacked gender or ethnic diversity on its staff, while a fifth cited environmental, social and governance concerns as the main reason for having fired managers.

Money managers are facing greater demand from investors, regulators and activists to direct capital toward toward business and activities that support a greener and fairer society. ESG assets are on course to exceed $53 trillion by 2025, according to Bloomberg Intelligence.

The disproportionate impact of the pandemic across sectors, along with policy initiatives in markets such as Europe, have also given a boost to stocks focused on sustainability. A gauge of European ESG leaders has strongly outperformed the broader equity market since the coronavirus-spurred selloff last March.

“There’s a wider trend in ESG where much more consideration is given to the impact portfolios have and how to understand that,” said Kathryn Saklatvala, head of investment content at Bfinance. “ESG before was ethics, then it was about risk management, then about an opportunity for long-term performance and now it’s moved toward what impact is the portfolio having.”

The survey of 256 respondents that took place in December 2020 also revealed a familiar challenge for ESG investors: lack of standardized data. Over 80% of investors said that getting consistent ESG reporting across asset managers and asset classes is a challenge.

When it comes to carbon emissions though, investors are making a bigger effort to calculate the footprints of their portfolios, with 46% now doing so, up from 28% a year ago. And a greater proportion -- 28% compared with 3% three years ago -- are also measuring how their investments contribute to the UN Sustainable Development Goals, which have become the bedrock of the market for impact investing.