Investors’ integration of ESG significantly increased since pre-pandemic, finds BNP Paribas survey
13 September 2021 France
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Some 22 per cent of investors now integrate ESG into at least 75 per cent of their portfolios, a stark change compared to 2019 levels, according to a new ESG survey conducted by BNP Paribas.
Comparing 2021 levels of ESG portfolio integration with those of two years prior, BNP Paribas finds not one respondent in 2019 envisaged a future where 75 per cent or more of an investor’s portfolio would integrate ESG by 2021.
In the global survey, which is conducted annually, BNP Paribas finds that brand and reputation has overtaken returns as the main ESG driver for change, “spurred on by governments pushing towards meeting the targets set out in the Paris Agreement, new regulations, as well as COVID-19 raising individuals’ social conscience”.
BNP Paribas also finds there has been a decrease of ESG teams within asset management firms, not because they are declining but because their integration into the business or portfolio is fast becoming the industry norm.
Trevor Allen, sustainability research analyst at BNP Paribas, says “ESG is the key topic going forward. The ESG trajectory — moving from brown finance to green finance, with more social responsibility as well as better governance structure — is steepening, not flattening out.”
The data also reveals growing support for thematic investing, indicating investors are taking an increasingly in-depth approach to ESG, actively allocating capital to themes or assets related to certain environmental or social outcomes, such as clean energy or energy efficiency.
Overall, 38 per cent of investors are employing thematic investing, BNP Paribas found, with the trend more evident among asset managers (46 per cent), who will likely use thematic investing to identify investment opportunities, seek to generate alpha and differentiate their strategy from their peers.
As for Sustainable Finance Disclosure Regulation (SFDR) compliance, BNP Paribas found that almost half of respondents based in Europe say they understand the regulation and what it means for their organisation.
“This reflects the phased rollout taken by the EU — with the most significant enforcement due to take place in 2022 — and the fact that institutional investors await details of the final requirements, which are still being developed,” says the report.
With this in mind, BNP Paribas finds that data remains the primary barrier to ESG integration, with 59 per cent of 2021 survey respondents citing issues related to data as a top impediment. This compares with 66 percent in 2019.
When considering the “S” in ESG — the social pillar, data was also seen to be the “sticking point” by respondents.
There is an acute lack of standardisation around social metrics, BNP Paribas says, with 51 per cent of respondents rating social factors as the most challenging to measure.
Delphine Queniart, global head of sustainable finance and solutions, global markets, at BNP Paribas, comments: “Asset owners in particular are increasingly integrating ESG factors and looking into impact. This could trigger positive changes from a sustainable perspective, including increasing ESG disclosures and influencing changes from companies.”
Florence Fontan, head of company engagement at BNP Paribas Securities Services, says: “The industry has come some way since our first ESG survey in 2017. Asset owners and managers are now more likely to embed ESG within their organisation and strategic decision-making.
She adds: “They’re also increasingly embracing thematic investing. This should stand the industry in good stead to accelerate asset allocation to ESG strategies, an urgent necessity as warnings on climate change grow starker.”
A total of 356 asset managers took part in this global ESG survey.
Comparing 2021 levels of ESG portfolio integration with those of two years prior, BNP Paribas finds not one respondent in 2019 envisaged a future where 75 per cent or more of an investor’s portfolio would integrate ESG by 2021.
In the global survey, which is conducted annually, BNP Paribas finds that brand and reputation has overtaken returns as the main ESG driver for change, “spurred on by governments pushing towards meeting the targets set out in the Paris Agreement, new regulations, as well as COVID-19 raising individuals’ social conscience”.
BNP Paribas also finds there has been a decrease of ESG teams within asset management firms, not because they are declining but because their integration into the business or portfolio is fast becoming the industry norm.
Trevor Allen, sustainability research analyst at BNP Paribas, says “ESG is the key topic going forward. The ESG trajectory — moving from brown finance to green finance, with more social responsibility as well as better governance structure — is steepening, not flattening out.”
The data also reveals growing support for thematic investing, indicating investors are taking an increasingly in-depth approach to ESG, actively allocating capital to themes or assets related to certain environmental or social outcomes, such as clean energy or energy efficiency.
Overall, 38 per cent of investors are employing thematic investing, BNP Paribas found, with the trend more evident among asset managers (46 per cent), who will likely use thematic investing to identify investment opportunities, seek to generate alpha and differentiate their strategy from their peers.
As for Sustainable Finance Disclosure Regulation (SFDR) compliance, BNP Paribas found that almost half of respondents based in Europe say they understand the regulation and what it means for their organisation.
“This reflects the phased rollout taken by the EU — with the most significant enforcement due to take place in 2022 — and the fact that institutional investors await details of the final requirements, which are still being developed,” says the report.
With this in mind, BNP Paribas finds that data remains the primary barrier to ESG integration, with 59 per cent of 2021 survey respondents citing issues related to data as a top impediment. This compares with 66 percent in 2019.
When considering the “S” in ESG — the social pillar, data was also seen to be the “sticking point” by respondents.
There is an acute lack of standardisation around social metrics, BNP Paribas says, with 51 per cent of respondents rating social factors as the most challenging to measure.
Delphine Queniart, global head of sustainable finance and solutions, global markets, at BNP Paribas, comments: “Asset owners in particular are increasingly integrating ESG factors and looking into impact. This could trigger positive changes from a sustainable perspective, including increasing ESG disclosures and influencing changes from companies.”
Florence Fontan, head of company engagement at BNP Paribas Securities Services, says: “The industry has come some way since our first ESG survey in 2017. Asset owners and managers are now more likely to embed ESG within their organisation and strategic decision-making.
She adds: “They’re also increasingly embracing thematic investing. This should stand the industry in good stead to accelerate asset allocation to ESG strategies, an urgent necessity as warnings on climate change grow starker.”
A total of 356 asset managers took part in this global ESG survey.
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