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ESG: Important Criterion or “Well-Intentioned Window Dressing” for Institutional Investors?

ESG: Important Criterion or “Well-Intentioned Window Dressing” for Institutional Investors?

Thursday 16th November 2017

ESG: Important Criterion or “Well-Intentioned Window Dressing” for Institutional Investors?

 

UK asset managers have been launching a raft of new ESG-based investment strategies. Is demand from UK pension schemes growing to the degree that the industry hype suggests, or are these managers jumping the gun?

2016’s findings from our UK Institutional Market Study suggested that industry hype was outpacing actual demand from pension schemes. ESG ranked low relative to other factors in investment manager selection. Most scheme managers and trustees reported that they don’t engage with ESG principles at all, or that they only do to the extent that they expect investment managers to have a clear ESG policy. One cynical scheme manager commented, “I consider ESG to be nothing more than well-intentioned window dressing.”

Yet lack of enthusiasm for ESG was not universal. In fact, a sizeable proportion of larger UK schemes reported taking ESG more seriously, including it as a criterion for selecting managers across the board or investing/planning to invest in ESG-themed mandates. Additionally, some were employing a specialist consultancy such as Pensions & Investment Research Consultants or Hermes EOS to help them improve their corporate engagement.

Interviewing consultants and scheme managers in-depth about their perception of ESG investing earlier this year, a fundamental misunderstanding of its purpose became quickly apparent. Some of these individuals saw a trade-off between financial gain and ESG; they didn’t perceive the latter as something that is there to highlight long-term risks and therefore improve investment returns. Perhaps the real barrier to mainstream adoption of ESG investing is this misunderstanding.

To alter perception, asset managers need to change how they talk about ESG. One local government pension scheme manager astutely commented, “You could take ‘ESG’ out of the sentence and just say a manager should take all the material risks into account.” Rather than talking about ESG as a standalone concept, it should be integrated into discussions about general risk management.

It feels like the growth potential is there for ESG, and it certainly doesn’t hurt to build a track record in this area. What remains to be seen is whether regulation will come along to accelerate take-up, or if the asset management frontrunners will have to play the long game.

Have your say on ESG investing and other pension investment-related matters in Research in Finance’s third annual industry survey. All participants receive reimbursement for their time and gain access to the summary report for the previous year’s research, in addition to a report of key findings for 2017 once the responses have been analysed.

 

To find out more and take part, please contact Annalise Toberman at annalisetoberman@researchinfinance.co.uk

 

Further information from Portfolio Institutional:

Portfolio Institutional will also be partnering with Research in Finance on our first research study in to ESG.  There are details below on the package available to sponsors.

Raising Standards in ESG – the monthly campaign from Portfolio Institutional:

Goal = To increase awareness, understanding and knowledge with institutional investors, about the benefits, options and the asset managers who offer ESG solutions to pension funds. Enabling Asset Mangers to communicate their ESG strategies and solutions to pension funds and schemes to learn which options resonate with them

 

Solution = Portfolio Institutional write a feature on an ESG topic every month, for example the November issue is ‘Executive Pay’. Our features team contact pension funds, consultants, and our sponsors for quotes, comments and research. The article is then published in the next issue of Portfolio Institutional in the ‘Raising Standards in ESG’ section in print and online.   In addition to the feature we publish news and content from schemes and our sponsors in this section.

These features and additional content from our sponsors (such as whitepapers or research) will be used to create our online ESG Hub- an ESG library for pension funds.

 

Sponsor package:

Sponsors will be quoted in every ESG feature in every issue.  We will conducting our first ESG Survey in Q1 2018 sponsors will be sent a) the full results as they will be used for future features and b) only sponsors will see the results of the ESG brand survey.  Your logo and branding in every issue as a ‘Supporter of Raising Standards in ESG’. A quarterly call with sponsors to discuss the topics for the features for the following quarter – to ensure we discuss the topics most relevant to you. Sponsors can send digital assets that will be used to build our ESG Hub.

 

There is a cost for asset managers and consultants to sponsor and please get in touch with the Portfolio team to find out more – r.mccullough-bray@portfolio-verlag.com

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