Institutional investors continue to incorporate ESG factors into investment decisions, and many not yet doing so are considering it, according Callan's eighth annual ESG survey.
As with last year's survey, Callan found that 42% of institutional investors incorporate ESG factors into investment decisions, up from the 22% result from the first survey in 2013. The 2020 survey also registered the highest rate of respondents, 30%, who are not yet incorporating ESG factors but are considering it, triple the rate from 2019.
Endowments are still the top ESG incorporators, increasing their adoption rate to 63% from 58% in 2019, followed by public plans at 36%, and corporate defined benefit and defined contribution plans at 32%.
The upward trends come despite regulatory uncertainty about ESG investing, reflecting the long-term investment approach of institutional investors, said Tom Shingler, senior vice president and chairman of Callan's ESG Committee, in a statement. "We see increasing investor interest in incorporating financially material ESG factors into their investment processes,"
The survey was conducted in June and July among 102 U.S. institutional investors, ranging from less than $500 million to $20 billion in assets.
A separate survey of asset managers by Russell Investments also found increasing incorporation of ESG metrics into their investment processes and wider reliance on ESG resources to do so. Russell's sixth annual ESG Manager Survey found nearly 80% of firms incorporate ESG factor assessments in their investment process.
The survey covered 400 asset managers globally across a broad range of asset classes, including equity, fixed income, real assets and private markets, that were asked views on ESG investing and how they integrate ESG factors into investment processes. This year's survey represented 33% more asset managers than the previous year, with 60% based in the U.S., 14% in the U.K. and 8% in Europe. A quarter of participants had more than $100 billion in assets under management.
In the 2020 survey, 78% of managers reported that they explicitly incorporate qualitative or quantitative ESG factor assessments into their investment processes, compared to 73% in last year's survey. The most growth was reported in the U.S., at 11%, Canada at 15% and the U.K. at 11%.
As asset owners increasingly push for transparency into ESG factors in investment processes, the survey found that 49% of asset managers claimed to offer ESG-specific reporting to clients. Asset owners also want to see more linkage between portfolios and climate risk, and firms in Europe, Australia and New Zealand were better prepared to address those climate risk measures, the survey found.
Corporate engagement was the most frequent source of ESG-related information, the survey found, particularly among fixed income managers, 92% of which reported regularly engaging with companies they invest in. Along with engagement, more asset managers are using external ESG data providers to supplement their in-house views, according to the survey.
"The results of our 2020 survey show the fund management industry continues to embrace ESG integration, even amid pandemic-related challenges and volatility. They are seeking better ESG information, deeper resources, broader consideration within investment processes and clearer regulatory standards," Yoshie Phillips, Russell Investments' director of investment research-global fixed income, said in a statement.
"While governance remains the dominant factor in investment decisions, relative to environmental and social factors, the survey also reveals increasing focus on all three areas," Ms. Phillips said. "At the same time, asset managers indicate they're seeking greater clarity of the value-add from explicit ESG integration."