The majority or 88% of respondents are using third-party environment, social and governance ratings to support investment decisions or, as part of their investment process, according to an ESG focused survey taken by Ninety One taken at FundForum, one of the largest events gathering investment professionals in Europe.
It also found that 92% said they expect to increase their use of ESG ratings in the future.
The survey comprised responses from 130 fund management professionals, including fund managers, intermediaries, asset owners, consultants, and those in the distribution and asset servicing industries.
Ninety-One said that ratings cannot provide a full view into how a company manages its externalities both positive and negative. Externalities such as a company’s natural capital or impact on the environment, social capital or interaction with the societies it operates in as well as human capital -the potential of employees will increasingly influence valuations.
“We believe optimising ESG ratings will not generate long-term portfolio outperformance,” said Deirdre Cooper, co-head of thematic equities and co portfolio manager, global environment.
She added, “Findings from this survey underscore the need for investment managers to change the way their investment approach works: that involves analysing not just the returns to their financial shareholders, but the returns to all stakeholders. We challenge the industry to put more effort into building sustainable investment frameworks and move beyond the numbers to drive real change as the industry continues to evolve.”
The survey also revealed that 68% currently have, or plan to have, a sustainable investment allocation to emerging markets equities.
“We firmly believe that emerging markets will determine the world’s ability to reach net zero,” said Juliana Hansveden, portfolio manager, emerging markets sustainable equity.
She noted that currently, 80% of global financial assets are in developed countries and 88% of ESG/sustainable investment funds are global or developed market-focused.
By contrast, 70% of the required UN Sustainable Development Goals and Paris Agreement capital needs to be directed towards developing countries,” says Hansveden.“It has been seven years since the Paris Agreement was signed and the UN SDGs were adopted. However, we still have a significant funding gap to bridge. This responsibility is shared by the investment industry.”
The survey also explored respondents’ perspectives on the composition of investment teams, finding that most respondents or 81% consider the diversity of investment teams when choosing a fund manager.
Similarly, when investing in companies, those with diverse and inclusive cultures can generate better outcomes for all stakeholders.
Stephanie Niven, portfolio manager, global sustainable equity, says, “We are living in a world of rapid change where inclusive diversity is increasingly important to making better decisions.
While there is more work to be done, these results indicate that people are recognising the significant positive potential in human capital. We need to think beyond the obvious and evolve sustainable investing to capture what really matters to creating sustainable value creation for all.”
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