Institutional investors want to integrate environmental, social and governance factors into their portfolios and find the lack of acceptable policy frameworks and supporting data as the primary roadblocks, according to a new survey conducted by NMG Consulting and sponsored by Franklin Templeton Investments.
The survey, conducted April through June with 257 institutional investors, splits the respondents among those that have a high, medium and low level of sophistication.
Twenty-nine respondents with low sophistication are early adopters in developing and designing ESG principles; 103 respondents with medium sophistication have adopted ESG considerations across more than one asset classes; and the 55 respondents with high sophistication have clearly identified sets of beliefs reflected in their policies. Another 50 respondents have yet to implement any ESG policies at all.
The more experienced investors become with responsible investing approaches, the more they integrate ESG variables into their approaches, according to the survey.
Those with high sophistication integrate ESG into 91% of their equity portfolios, for example, while those with medium and low sophistication integrate ESG into 69% and 41% of their respective equity portfolios.
When asked what their key challenges are in expanding ESG policies, 115 of the 257 respondents answered the question. Of that total, 39% cited the lack of an acceptable policy framework and 36% cited the lack of quality data to support ESG-related decisions.
Other challenges cited were:
- A limited range of ESG asset management products (29%).
- A lack of alignment with fund objectives involving risks and returns (27%).
- A lack of knowledge of how to incorporate ESG factors (24%).
- A lack of regulatory focus and support (23%).
Multiple answers were accepted.
Overall among respondents, social issues are considered less often than environmental and governance issues. When asked which ESG factors they consider, the highest percentage — 78% — responded that climate change was an ESG factor, followed by 62% citing environmental sustainability; corporate governance, 61%; carbon emissions, 59%; and corporate corruption, 54%. The highest scoring social factor, human rights, was considered by 51% of respondents.
The survey was conducted with executives from 79 pension funds, 66 discretionary fund manager/private banks, 37 insurers, 33 investment consultants, 11 endowments/foundations and 11 sovereign wealth funds.
