Although environmental, social and governance investing has matured and pension funds have become more sophisticated at incorporating it into portfolios, asset owners can still do more, attendees heard at the Global Future of Retirement conference in New York on Monday.
Panelists speaking at the event agreed that misconceptions about ESG are still present in many of the investors' decision-making processes and called for ESG to be a source of ideas and opportunity management for investing overall rather than a separate area of investing.
"Unfortunately, asset owners set up an ESG mandate but that's where it stops," said Fiona Reynolds, managing director of U.N. Principles for Responsible Investment. Ms. Reynolds added that many of asset owners are not going to do the monitoring of the ESG risk after awarding the mandate and it is not going to be embedded into their investment process. They are not asking their managers for evidence of how they are the managing ESG in the portfolio, she said.
However, Ms. Reynolds recognized that some asset owners have constraints so organizations such as PRI began to build tools to help them to do regular work on ESG.
Cindy Rose, head of responsible investing-stewardship at Aberdeen Investment Management, speaking on the same panel, added: "And it's up to the asset owners to decide how much they want the managers to report back to them and to see where the gaps are."
Jens Peers, chief investment officer, sustainable equities and fixed income at Mirova said that when thinking about ESG there is a need to redefine the time horizon and look at ESG from a long- term perspective.
Mr. Peers argued that many investors' "investments are still not in line with what they want, but they will soon discover that and will see an acceleration in ESG investing."
Ms. Reynolds added that part of the issue is that "portfolio managers are incentivized to make short-term decisions. Asset owners are long-term investors in a market that acts upon short-term principles, she said.