ESG continues to influence more investment decisions by asset managers and more hiring, according to a Russell Investments survey released Oct. 23.
The annual ESG Manager Survey of 169 asset managers with a combined $20 trillion in assets under management found that just 7% of asset managers did not factor ESG into decisions in 2023, a drop from 22% last year.
"We believe this reflects a deepening recognition that ESG issues — encompassing areas such as climate risk and labor relations — are financially material," said Kris Tomasovic Nelson, senior director and head of ESG investment management for Russell Investments, in a release on the survey. Russell Investments manages $291.9 billion in assets.
With climate risk the dominant concern for investors, "We expect ESG to become further rooted in the investment landscape," Nelson said.
The survey also found increasing emphasis on active ownership as an ESG investment tool, and the prominence of direct company engagement as a source for ESG information. Factors driving those investment decisions included materiality to reduce security risk, ability to drive positive returns, governance concerns, climate risk and social risk, the survey said.
For 75% of active managers responding, the increase in sustainable investing also meant hiring more dedicated ESG staff in the past year, including on ESG teams, data integration and analytics, stewardship, equity investment and compliance functions.
Regulators are also increasing demands on investors for ESG-specific compliance, with stronger reporting requirements in Europe, Canada and Australia, the survey found. On ESG metrics, 66% of managers reported ESG metrics for all funds, up from 59% in 2022, with carbon emissions being the top metric, followed by diversity statistics.
Asset managers surveyed preferred the Paris Aligned Investment Initiative's Net Zero Investment Framework for setting targets. Two-thirds of managers aim to manage 50% of assets in line with net-zero objectives by 2030, according to the survey, which found that 13% already manage 80-100% of assets in alignment.
While respondents raised the perennial challenges of ESG data and corporate reporting and integrating it to suit diverse clients, only U.S. managers, 56% of survey respondents, cited negative performance repercussions, "reflecting ongoing debates on financial materiality in the country," the survey said. When asked about clients' top concerns even U.S. managers said it was climate and environmental concerns, the survey said.
