U.S. global money managers are increasingly integrating ESG considerations into their mainstream investment decisions to stay competitive in searches from big European pension and sovereign wealth funds.
“This gives (U.S. managers) an opportunity to tap into larger pools of institutional cash,” said one U.S. consulting source who requested anonymity.
European pension and sovereign wealth funds are saying they will incorporate environmental, social and governance factors into all investments. Funds that have made such declarations include the 2.6 trillion Norwegian kroner ($437 billion) Government Pension Fund-Global, Oslo; the €33.3 billion ($44.9 billion) Fonds de Reserve pour les Retraites, Paris; and the £4 billion ($6 billion) Pension Protection Fund, London.
Experts say U.S. managers generally are less interested in incorporating ESG considerations into investment processes, in large part because their U.S. institutional clients aren't pushing for these changes. Among those who are integrating ESG data, some are convinced of the performance enhancement and risk management benefits; however most are led by increasing demands from European investors.
“Whether it's beneficial from an investment perspective is still questioned (by U.S. managers) — to say the least,” said David J. Bauer, a partner at manager consultant Casey, Quirk & Associates, Darien, Conn. “It's first and foremost a client-driven issue.”
U.S. money managers are taking “first steps” into ESG integration and are about three years behind European managers, said Ran Fuchs, global head of ESG analytics at RiskMetrics Group Inc. in New York. RiskMetrics provides ESG data to research analysts at money management firms.
“There's much more skepticism in the U.S. about ESG factors impacting performance,” Mr. Fuchs said. “It's much more difficult for U.S. (managers) to compete (in Europe) because they don't have these (ESG) capabilities.”
Richard Stathers, equity analyst and head of responsible investment at Schroder Investment Management Ltd. in London, agreed. “Most RFPs (from European institutional investors) have formal questions around (ESG capabilities). There is a level of risk there (in not developing ESG capabilities).”