Asset managers like to talk about their ESG policy, "but it is not enough. This is a starting point," she said. "What you really want to spend a lot of time on is the process."
For Adam Gillett, head of sustainable investment for Willis Towers Watson PLC in London, which has $3.5 trillion in total assets under advisement, investors need to study a manager's culture. "That gives you a real tell about whether they are going to be able to continue innovating and integrating ESG," he said.
Ms. Bioy said analysts need to do all that but so do investors. "It's more homework for the investors. Portfolio managers have to submit reports, but they can always cherry pick. It requires the investors to ask the challenging questions."
That is fine with Rob Harley, a portfolio manager with the sustainable funds group at Stewart Investors in Edinburgh, with $24.8 billion under management. "We value when our clients are challenging us. Our reporting can always improve. I think everybody has got a responsibility to not accept things at face value. The same way we are spending a great amount of time researching companies and making decisions, we like our clients to be doing the same with us," Mr. Harley said.
Stewart Investors also offers an interactive holdings map that shows investors what specific strategies and funds are delivering in sustainable terms.
In November, Morningstar launched a qualitative measure of how well strategies and managers address commitment to ESG.
Actively managed strategies are rated on process (45% of the rating), resources (35%) and asset manager capabilities (20%), while asset managers are rated for their philosophy and process (40%), resources (30%) and level of active ownership (30%).
So far, Morningstar is proving to be a tough grader. Out of 31 asset managers assessed in 2021, only one — Australia's Affirmative Investment Management — earned the top "leader" status, followed by five firms at the "advanced" level: Amundi, BNP Paribas Asset Management, HSBC Global Asset Management, Jupiter Asset Management and Legal & General Investment Management Ltd.
In November 2020, Morningstar assessed 40 managers and awarded the top “leader” status to Australian Ethical, Calvert Research and Management, Impax Asset Management LLC, Parnassus Investments, Robeco and Stewart Investors.
New ratings from Fitch Group's Sustainable Fitch take a similar approach, assessing ESG performance at the entity, instrument and framework levels to allow investors to compare strategies and managers in more detail.