Asset managers and owners are set to increase their allocation into investment strategies that incorporate environmental, social and governance (ESG) aspects over the next two years, but there are still significant barriers to adoption, according to a BNP Paribas survey.
The survey report noted that 77 percent of asset owners already incorporate ESG aspects into their strategies, while 80 percent of asset managers incorporate ESG in terms of the products they market.
Of the asset owners that already incorporate these aspects, 46 percent said they currently invest 25 percent or less into ESG-specific strategies, but intend to increase allocation to 50 percent over the next two years.
Similarly, of the asset managers that already incorporate ESG strategies, 40 percent said they already market 25 percent or less of their funds as ESG or responsible investment funds. However, 54 percent said they plan to increase this to 50 percent or more over the next two years.
Of all respondents taking ESG issues into consideration, 42 percent said they see the environmental aspect as having the greatest potential influence on returns, something that the report said “shows that organisations are planning ahead to future legislation and the transition to a low-carbon economy”.
Equally, 50 percent of those integrating ESG are also embarking on other sustainable investments such as green bonds specifically allocated to environmental or social projects.
Sid Newby, head of asset manager and asset owner sales at BNP Paribas Securities Services, said: “There is set to be a huge shift in the way investments are selected over the next two years. It is widely accepted that incorporating ESG can be beneficial to returns, but what we will see now is firms really putting investment weight behind this.”
A lack of robust data available, and the cost challenges of building new resources, emerged as barriers to further adoption of ESG investment.
Of all respondents, 64 percent of asset owners and 47 percent of asset managers expressed a concern that a lack of data could act as a barrier to further adoption of ESG strategies now, although only 22 percent of asset owners and 8 percent of asset managers anticipated this still being an issue in two years’ time.
Almost a quarter of the total number of respondents, 23 percent, also noted concern around the lack of advanced analytics with regards to ESG investment strategies.
Trevor Allen, product specialist for investment risk and performance at BNP Paribas Securities Services, said: “While the industry expects to capture data effectively within two years, the ability to draw conclusions from the data will remain a challenge. 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.”
The mounting costs of building new resources was considered a concern for 31 percent of the total respondents. Further, 28 percent of asset managers surveyed said they are concerned that they don’t have the ability to meet asset owners’ needs with regards to ESG, a figure that did not change when looking ahead two years.
Newby said: “Asset managers will need to work closely with owners to understand their ESG needs and design products suited to them—but this will require investment.”
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