More than four-fifths or 84% of global investors expect to increase their allocation to environmental, social and governance (ESG)-related investments over the next five years despite persistent data concerns, according to a new study – Cornerstones for Growth – by the SIX Group.
The research, which canvassed 300 portfolio managers, hedge fund managers and asset allocators across the UK, US, Europe, Hong Kong and Singapore, found 54% are currently allocated to ESG investments strategies.
In addition, the share of respondents whose ESG allocations have not yet reached 20% of their total portfolio is now in single figures.
The report noted that there was increased appetite for ESG investing across all regions, with the proportion of respondents in Asia, Europe, and the US expecting to raise their ESG allocation between 80% and 90%.
There was no country in which more than 5% of participants predicted a drop in ESG allocation over the next five years.
However, challenges remain, most notably the ongoing difficulty of having access to ESG related data. The report showed 19.2% of respondents cited this as the biggest obstacle to implementing an effective ESG investment strategy.
The US and the UK were found to be the most in want of higher quality ESG-related data, with a respective 34% and 31% in each region.
This reflects the slightly more developed nature of these two markets, as well as their international focus, which requires gathering source data for multiple jurisdictions.
Technological advancements that enable ESG integration were also highlighted by respondents globally as significant to the development of the space.
“The buy side faces many challenges with regards to ESG investing, not least a lack of access to high-quality ESG data, as well as technology to enable better ESG integration, reporting, and compliance,” said Marion Leslie, head financial information and member of the executive board of SIX Group.
She added, “As a result, companies are quite rightly demanding more from their technology and data vendors. As volumes rise, the strain on operational and analytical processes will inevitably intensify, resulting in a need for greater automation, quality, and access to expertise.”
Martina Macpherson, head of ESG product strategy and management at SIX Group, said, “For asset managers attempting to navigate the complex jungle that is ESG investing, there is a clear need for modern analytical solutions spanning both primary and secondary markets.
Market participants must be able to rely on providers that can tackle their interconnected data needs, changing regulatory requirements, and critically address positive performance management expectations through an end-to-end workflow.”
The report is latest in SIX’s Future of Finance series which specifically looks at buy side market participants,
it gauges the growth drivers and challenges surrounding mass institutional adoption of two developing and topical areas: digital assets and ESG investing.
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