ESG investing remains on course to reach almost half of portfolios in two to three years’ time, and to reach 63% in 10 years, according to a survey by The Index Industry Association (IIA).
This is on par with last year’s expectations (64%) but a notable rise from two years ago (52%), the third annual ESG Global Survey of Asset Managers found.
Interestingly, ESG support is highest among asset managers in the US, where 88% say it has become more of a priority, despite political pushback from right wing politicians.
The survey, which gathered responses from 300 CIOs, CFOs and portfolio managers from the UK, US, Germany and France, suggested that, despite significant economic volatility and political frictions, ESG’s future role in global investment portfolios continues to increase.
With assets under management for firms surveyed ranging from less than $1bn to more than $1bn, asset managers are ramping up their use of ESG factors.
Eight in ten (81%) asset managers said ESG has become more (54%) or much more (28%) of a priority to their investment strategy over the past 12 months.
Rick Redding, IIA CEO, said: “Our survey results affirm that asset managers continue to prioritise ESG criteria in making investment decisions.”
Environmental dominates
The “E” in ESG, or environmental criteria, continues to dominate, with asset managers expanding their view on applicable environmental factors.
Seventy-five percent of those surveyed stated that environmental factors should be prioritised over social or governance factors, but climate change/carbon footprint is no longer the only environmental consideration.
For the first time, natural resource usage or depletion (42%), sustainable supply chains (39%), and resilience of physical assets to climate change (38%) ranked above greenhouse gas and carbon emissions (32%) in terms of importance to ESG investment strategies.
At the same time, social issues are becoming more influential. More than three fifths (62%) of asset managers surveyed indicate investments displaying positive social criteria are a core part of all or most portfolios.
US asset managers again lead here, with 74% of those surveyed much more likely to incorporate social criteria in their portfolio decisions.
On corporate governance, asset managers are paying special attention to fair business practices (41%), accounting transparency (39%), and diversity among boards and leadership (35%), among a host of other factors.
AI for ESG
ESG continues to expand its influence beyond equities into fixed income and other asset classes, according to the survey.
In the three years of the IIA survey, commodities have risen most significantly in the proportion of asset managers implementing ESG in this asset class, from 37% in 2021 to 62% in 2023.
More than half (55%) of global asset managers expect to see the use of ESG criteria in commodities increase a lot or by a moderate amount over the next 12 months.
On the issue of available ESG tools and metrics, the vast majority of asset managers view these as fairly or highly effective, but challenges remain.
Among the biggest challenges cited by global asset managers are lack of data standardisation across markets (30%), insufficient quantitative data (29%), and a lack of agreed ratings and methods by providers (24%).
Redding said the survey results “demonstrate the managers’ desire for more, and more accurate, ESG data”.
Asset managers see emerging technologies—analytics, Internet of Things, blockchain, AI and machine learning, and others—as offering opportunities to improve the timing, depth and predictive content of ESG data and metrics.
US asset managers are especially attuned to the potential ESG applications of AI and machine learning. Almost half (48%) expect it to have the biggest impact on ESG measurement and reporting over the next two years.