The 2015 Responsible Investing survey by Investment Solutions, gauges the behavioural approach of fund managers by tracking their progress towards integrating environmental, social and governance (ESG) factors into their investment decisions.
Most asset managers surveyed believe that considering ESG factors reduces risk. Some 88% of local and 86% of global fund managers surveyed, believe that weighing up ESG factors results in a better assessment of risk.
This result is borne out by the fact that the majority of fund managers (82% local and 86% global), said they would avoid buying shares in companies if there were serious environmental, social and governance concerns. Further, a material number of fund managers (42% local and 64% global) have bought or sold a company based on environmental, social and governance issues in the past year.
Managers are thinking holistically about the sustainability of the businesses they invest in. There are a number of definitions and strategies found in the responsible investing space, including negative and positive screening, active engagement/ownership and integration:
Previously, in defining responsible investing, fund managers placed a greater weighting on governance factors and using negative and positive screening strategies. This can be a difficult strategy to use in the local market given the limited universe of companies in which to invest, relative to more developed markets.
The current survey highlights that managers are now thinking more holistically about the sustainability of businesses they invest in by considering all three ESG factors. This trend is supported by the numbers with 79% of local and 77% of global fund managers surveyed believing responsible investment requires that all three factors are considered when assessing a business during the investment process.
However, while most managers believe that considering ESG factors results in a better assessment of risk, only 50% of local and 45% of global fund managers believe that considering the ESG factors enhances returns. However, this result increased by 9% amongst local managers from last year’s survey.
The survey also highlights that responsible investing is receiving increased attention - from fund managers, their clients and the companies they invest in:
Despite the increased attention to - and awareness of - responsible investing, managers have highlighted a number of barriers to responsible investing: