A new survey by Russell Investments has revealed that 95 per cent of asset managers in Australia and New Zealand now integrate ESG into their investment processes.
According to the survey involving 369 asset managers globally, ESG integration with local managers has grown 2 per cent since 2020 and 9 per cent since 2019.
Australia and New Zealand lead the US on ESG integration (82 per cent) but remain slightly behind continental Europe (97 per cent) and the UK (100 per cent).
“ESG integration within asset management investment and business practices in Australia and New Zealand continues to evolve quickly, as ESG concerns – particularly ‘E’ issues and climate risk – sit front and centre in the minds of local asset owners,” said Russell Investments global equity portfolio manager James Harwood.
While 87 per cent of local asset owners identified climate risk and environmental issues as their key ESG concerns, only 14 per cent of managers said that environmental concerns drive investment decisions.
“More immediately, asset owners are demanding insight into how their assets will be managed in a net zero world,” said Mr Harwood.
“For savvy managers, it will pay to demonstrate to clients how decarbonisation targets will impact the value of their assets, and the level of management required to transition their assets to this new reality.”
Governance is the most influential ESG factor on investment decisions for 80 per cent of asset managers globally.
Ninety per cent said they incorporate ESG discussions during meetings with senior management of the companies they invest in, compared to 9 per cent who rarely or never address ESG issues.
Additionally, 82 per cent of managers explicitly incorporate qualitative or quantitative ESG factor assessments into their investment processes.
“With climate change in particular proving such a critical issue, managers will have to demonstrate a clear focus and active efforts to make improvements in this area or risk being left behind,” said Russell Investments head of responsible investing Jihan Diolosa.
A total of 220 asset managers representing over US$57 trillion in assets have committed to investing aligned with reaching net-zero emissions by 2050 or earlier.
During a panel at the COP26 summit, Janus Henderson said the asset management industry was “hungry” to play its part in tackling climate change but required collaboration with governments, corporates and capital markets.
