Growing public demand for sustainable investment is hindered by traditional investment approaches that do not implement a principles-based and outcome-focused model, according to a new study of global asset managers.
‘Redefining value in ESG: The myriad of paths to the summit’, the third and final report commissioned by the Futures Industry Association’s European Principal Traders Association (FIA EPTA) to investigate key strategic trends in European markets, focuses on buy-side needs relating to ESG and sustainable investing.
Survey participants for the report include ESG specialists, portfolio managers, liquidity providers, exchanges, and head of trading at asset managers.
The report outlines two primary concerns: greenwashing risks caused by incomplete or insufficient ESG data; and over-reliance on traditional exclusions-based investing.
To address these challenges, asset managers require new methods to generate and manage actionable data and insights, the report argues.
This includes a broader concept of “value” to manage data, ensure trust in ESG assets, and reflect more than commercial outcomes — such as alignment with the United Nations’ Sustainable Development Goals (SDGs).
65 per cent of respondents say they now embed ESG factors as part of their investment process across all funds, with one-third only offering separate ESG funds.
In addition, 70 per cent say that data and technology continue to increase in importance in deciding where and how to trade.
Report author Rebecca Healey says: “As investment strategies pivot away from commercial concerns to meeting broader SDG objectives, the web of complexity is increasing. Understanding exactly what investment you are making, and with whom, has never been more critical.
“Sustainable investing remains highly subjective despite regulatory efforts to provide objective clarity. As ESG expands, from green energy and biodiversity to social impact investing such as zero hunger and quality education, it is clear that overly simplistic exclusion policies will need to be rewritten.”
Piebe Teeboom, secretary-general of FIA EPTA, adds: “Rather than complicating the journey for asset managers by insisting there is only one route open to them when making sustainable investments, we should adopt a more data-driven approach which allows choice and preference, as long as the summit of sustainable development is achieved.”
