Investors Look to ESG Strategies

Shanny Basar

Institutional investors are aiming to double investment in environmental, social and governance strategies over next two years but data quality remains a barrier according to a study from BNP Paribas Securities Services.

Great Expectations: ESG – What’s next for asset owners and managers, a survey from BNP Paribas Securities Services, found that 79% of asset owners and asset managers already incorporate ESG in their investment decision-making process. The survey from the French bank covered 461 global respondents, 223 fund managers and 228 asset owners, representing approximately $5.4 trillion in assets under management.

Sid Newby, head of asset manager and asset owner sales at BNP Paribas Securities Services, said at a media briefing that 45% of asset owners have less than 25% of funds invested in ESG and 46% aim to increase allocations to more than 50% in two years time.  In addition, 40% of asset managers have less than 25% of funds marketed as ESG strategies and 54% aim to increase this to more than 50% in two years time.

Newby said: “Asset owners particularly want to make stronger ESG allocation in alternative assets and their biggest concern is cost. Asset mangers are worried about the lack of robust data and their ability to incorporate the right data into products, which requires new skills.”

Asset managers and owners expect their investment in ESG alternative assets, including hedge funds, infrastructure, real estate and private equity and debt, to increase by 20% in two years.

The survey found that 55% believe that lack of robust data is the most significant barrier to ESG adoption – although only 15% believe this remain a barrier in two years time.

There are concerns over the quality of data, the lack of data for emerging markets and the difficult of making comparisons across regions or sectors. However regulators are reviewing reporting standards and last December the Financial Stability Board’s Task Force on Climate-related Financial Disclosures launched a consultation.

Trevor Allen, product specialist, investment risk and performance at BNP Paribas Securities Services, said at the briefing: “We have reached a tipping point of ESG adoption and the measurement of non-financial risks.”

Although the quality of data is expected to improve over the next two years, the survey found that advanced analytics and costs are expected to emerge as barriers over that time period.

“The ability to model the impact of climate change on balance sheets needs a new of set skills,” added Allen. “That is where smart data, artificial intelligence and ESG specialists will step in. We expect to see both managers and owners really ramping up their tech and personnel capabilities to address these needs in the coming years.”

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