Business innovation | Opinion

Are investors becoming more responsible?

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ESG means corporate value

Leading asset managers recognise that pushing companies on environmental and social performance adds real value

New research shows there is still a wide variance in performance and attitudes of asset managers when it comes to responsible investment.

Keen to investigate European asset management companies’ true performance on responsible investment, campaigning group Share Action has been compiling data on the big institutional investors since 2006.

This time around, it included for the first time European firms who largely operate outside the UK, and ranked asset managers based on publicly available information as well as responses to a questionnaire. This allows organisations to explain better how their investment process works to include environmental, social and governance (ESG) elements into investment decisions and performance.

Scored on everything from transparency and engagement with investee companies, to conflicts of interest policies and their disclosure of investment fees, clearly some are performing better than others. Schroder Investment Management, at the top, scored 82 out of a possible 90. BBVA Asset Management, at the bottom, managed just 10.

Other companies ranked at the top are Robeco Group and Aviva Investors. Down the bottom are Deutsche Asset Management and KBC Asset Management.

PRI sign-ups

Significantly, all but one (Santander Asset Management) of the 40 companies assessed – collectively investing more than €21tn on behalf of pension pots and charities around the world – are signatories to the UN’s Principles for Responsible Investment (PRI), widely regarded as a useful barometer of best practice.

For Seb Beloe, a partner at WHEB Asset Management, the ranking divides the asset managers who see the value of responsible investment, and those that are merely paying lip service to it through standards such as PRI.

“There are those who ‘do ESG’ because it is now seen as a compliance issue to be addressed as cheaply as possible.” For this group, relying on the PRI absolutely makes sense because it is a relatively cheap way of delivering on your ESG responsibilities, Beloe argues.

“And [then] there are those who actually see ESG as value-adding – that pushing companies to implement better practices helps them to run better, be more resilient and ultimately be more profitable businesses.”

Disclosure deficit

A trend unearthed by the research is the lack of disclosure about just how much engagement is going on between investor and recipient company.

Asset managers send signals to the market when they invest in particular companies for the long term. However, they help increase the perceived value of companies through conducting real engagement to address issues that affect how those companies operate. “These issues should not be limited to merely governance, but should also include material environmental and social issues,” argues Beau O’Sullivan from Share Action.

The survey found that overall disclosure on company engagement is still lacking, with little over half of the asset managers disclosing the total number of company engagements undertaken over the past year.

Positive influence?

But there is evidence that asset managers are slowly using their influence to push for positive changes in corporate behaviour particularly when it comes to addressing supply chain issues such as deforestation or human rights.

Around 84% of the survey respondents said they engage with companies on supply chain transparency, with more than 90% saying they ask for information on human rights issues. O’Sullivan, highlights the coalition of 87 investors, with over $5.3tn assets under management, that is backing the UN Guiding Principles for Business and Human Rights and supporting the Corporate Human Rights Benchmark.

There remains, of course, the challenge for some asset managers in that using their influence to encourage more awareness of ESG issues, which tend to be long-term in nature, is counter to the otherwise short-term focus on quarterly results. That said, O’Sullivan identifies a positive trend. “Investors are mobilising to send these signals more strongly as a collective.”

The growth in responsible investment will be a key part of the discussion at a new Innovation Forum conference on 21st-22nd June in London. Join Standard Chartered, BASF, Hermes Asset Management, Hilton, Danone, London Stock Exchange, ABN AMRO and many more at How business can measure the imact – and ROI – of corpoorate sustainability. Full details available here.

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