Asset managers' commitment to ESG is evident in U.S. public markets but is not showing up in formal investment documents, according to research released Thursday by Cerulli Associates. The research analysis found that an estimated 88% of total U.S. public market assets, including publicly traded equity, fixed income and liquid alternative funds, are affiliated with a Principles for Responsible Investment signatory, yet only 4.5% of those assets describe in their official documents that ESG considerations inform their investment decisions.
Part of reason is confusion over standards of terminology, Cerulli found. Other factors cited by asset managers were related to client receptivity, including client unfamiliarity with ESG factors (26%), the perception that considering ESG issues has a negative impact on performance (25%), and difficulty defining the boundaries of ESG (25%).
While more asset managers are demonstrating to their clients that ESG factors have financial relevance, "the concept is still relatively new to investors," said Michele Giuditta, director of institutional research at Cerulli Associates and lead analyst for the research, in an interview.
Ms. Giuditta was initially surprised that fewer than 5% of signatory documents formally recognize it but was less so after talking with asset managers and analyzing the overall research in Cerulli Associates' U.S. Environmental, Social, and Governance Investing 2019 report.
Another factor is that many U.S. asset managers signed with PRI in the past five years. "Many are in the early stages of integrating their ESG approach, and many firms told us they are adding resources. Also, a lot of asset managers do not take an ESG integration approach for all of their strategies," she said.
"I think we are slowly seeing the change take place. It is exciting to see the change. More asset owners and consultants are asking managers if they have an approach," said Ms. Giuditta.