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ESG impact investing still seen as an activist strategy, finds new report

Financial details of the transaction were not disclosed.

Better data, engagement from regulators and more committed clients is needed to embed ESG impact investing into the mainstream agenda.

Bridging the gap between profit and responsibility is an area that needs to be addressed if ESG commitments are to be taken seriously, says a new report from the Official Monetary and Financial Institutions Forum (OMFIF) produced in collaboration with Mazars, the audit, tax and advisory firm.

Nevertheless, there is progress in some areas, particularly in more ESG-related data becoming available. This marks an important step forward as this financial data and statistics can be embedded into wider reports on risk and analyses.

Improving on ESG impact investing

The inclusion of such data will be crucial in accounting for ESG-related risks which have largely been missed by traditional analyses until now, notes OMFIF.

Although this is a small step forward, ESG risks are not yet fully captured in financial reporting methods, found the report.

The pandemic has underscored the need for a global sustainable recovery and has upped the total size of the green bond market to more than $1.2trn

ESG and US asset management: THE FUTURE IS NOW

The approach at Barings with regards to ESG impact investing has been focused on meeting client demand, according to Sarah Munday, director of sustainability. “When we think about ESG at Barings and how that affects different asset classes, a lot of our clients three years ago were probably focused primarily on that negative screening approach,” she added.

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“And it’s really hard to do that when you’re thinking about some of those smaller, not publicly listed companies that don’t have large sustainability teams. Data is a huge challenge.”

Recommendations from the report ESG and US asset management: THE FUTURE IS NOW include incorporating ESG information into investment decisions, regardless of whether a strategy has a sustainable mandate.

Heading in the right direction

Looking at individual companies, the proportion of strategies and client assets that integrate ESG considerations has improved.

ESG-integrated assets totalled around 25% of Neuberger Berman’s assets five years ago. That has now increased to 85% (almost $400bn).

Nevertheless, ESG impact investing still is seen as an activist strategy. “Typically, when we see a client want to put money towards an ESG or sustainable strategy that has a particular outcome associated with it, they’re going at that for one of two reasons: either it’s aligning with their particular values… or they’re doing it to lean into a particular macro trend that they believe in,” Kaitlin Bergan, director of sustainable investing at BlackRock.

An asset manager interviewed for the report revealed: There is an agreement that ESG data is a problem, and yet it’s not a clean black-and-white answer, it’s messy. Being able to have that honest conversation, one, with yourselves and, two, with your clients to understand the end objective is the priority.”

ESG impact investing remains a complex, multifaceted and nuanced issue. Better data and engagement from regulators can push forward change. “What we learned is that ESG is not a one-size-fits-all proposition,” Brandon Cooperman, senior manager of Mazars Group said.

But going forward, “clients are demanding more transparency, more trust and more products. Doing nothing is no longer enough,” he added.

What are your views on the integrity of ESG impact investing? Get in touch.

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