Fund managers' ESG risk management for pension fund clients is improving, according to an XPS Pensions Group client survey released Monday.
The U.K. consultant looked at 227 funds across 53 managers and found that the proportion rated the highest, green, improved to 47% from 36% in 2022, particularly for equity and multiasset fund managers.
The survey also found that 18% of clients are 100% invested in the green-rated ESG funds, up markedly from 2022, when it was just 2%.
XPS has conducted an annual ESG review since 2020, rating fund managers as green, amber or red for managing ESG-related risk.
Alex Quant, head of research for XPS, said in the survey that "the vast majority of schemes have indicated that they believe ESG factors to be financially material," making it critical that they invest with managers who fully embed ESG into the investment process to manage risk and identify market opportunities.
"Managers in general have made good progress in the last year," the survey said. It noted that the increase in green-rated funds was driven primarily by improved ratings, which it attributed to client engagement with managers. "However, it's clear that there is still room for improvement by many managers, so that further engagement and progress is required," and clients with lowest-rated managers should consider switching to green-rated managers, it said.