Isio’s Sustainable Investment Survey Highlights ESG Policies and Opportunities Across Asset Managers

The Rise of ESG Integration in Asset Management: Insights from Isio’s Sustainable Investment Survey

In recent years, the focus on Environmental, Social, and Governance (ESG) factors in investment decision-making has gained significant traction. Asset managers are increasingly recognizing the importance of integrating ESG considerations into their strategies to not only drive positive impact but also mitigate risks and enhance long-term performance.

According to Isio, a leading pensions consultancy in the UK, all asset managers surveyed have established ESG policies, with approximately 50% of funds covered having ESG objectives in place. The findings from Isio’s Sustainable Investment Survey shed light on the state of ESG integration across various asset classes, highlighting both positive developments and areas for improvement in asset managers’ ESG commitments, investment approaches, risk management, and reporting practices.

One key takeaway from the survey is the strong firm-level adoption of ESG practices among asset managers. Nearly all surveyed asset managers have dedicated sustainable investment teams to support ESG risk management and stewardship, with three-quarters having set firm-level net zero commitments. Moreover, a significant proportion of firms are signatories to industry initiatives such as the UK Stewardship Code and the Net Zero Asset Managers initiative, demonstrating a commitment to responsible investing practices.

While firm-level ESG adoption is robust, there is room for improvement at the fund level, particularly in passive equity and credit sub-asset classes. ESG integration is well established in active equity and real assets strategies, with a majority of funds having set explicit ESG objectives and identifying ESG-related opportunities at the fund level. However, passive equity and credit strategies lag behind, primarily due to challenges with data accessibility.

In terms of risk management, Isio’s analysis reveals that ESG factors are increasingly integrated into risk management frameworks across various asset classes. ESG specialists play a significant role in the risk management process for a majority of funds assessed, with climate modelling being used to quantify fund-level climate risk exposure. While there is widespread use of ESG scorecards and multiple data sources, there is room for improvement in climate modelling, especially in passive equity and credit strategies.

On the reporting front, there is a growing focus on TCFD-aligned climate reporting, but there is still a need for further development, particularly in private markets. Social and nature-related reporting also lags across all asset classes, highlighting the need for investors to engage with evolving frameworks and standards to improve reporting practices.

Overall, the survey underscores the importance of collaboration and continuous improvement in sustainable investing practices. Asset managers are increasingly engaging with industry initiatives focused on social and environmental issues, signaling a commitment to responsible investing. As the landscape of sustainable investing continues to evolve, asset managers are encouraged to raise the bar on ESG integration in line with market developments and regulations.

Cadi Thomas, Head of Sustainable Investment at Isio, emphasizes the dynamic nature of sustainable investing and the need for ongoing assessment and improvement. Isio’s annual Sustainable Investment Survey aims to highlight ESG opportunities across asset classes and guide investors in greening their strategies further. With a focus on real assets and credit products, the survey identifies areas of growth and improvement, paving the way for a more sustainable and responsible investment landscape.

As the industry continues to evolve, Isio remains committed to reviewing asset managers and products annually to drive progress and raise the bar in sustainable investing practices. With a focus on industry advancements and best practices, Isio aims to support investors in navigating the complex landscape of ESG integration and driving positive impact through their investment decisions.