Although the environment is often the main area of focus in ESG, governance is the most important for traders, according to research from Bloomberg Intelligence (BI).
The survey which canvassed head and senior traders at 93 European asset management firms, including hedge funds, found that 87% of European buyside traders said governance is “important” or “very important” to their business, especially in vendor and counterparty relationships.
Unlike portfolio managers who are more focused on the environmental and social pillars, traders are most concerned about working with counterparties that maintain ethical standards, according to Larry Tabb, BI’s head of market structure research.
The last thing traders want is to get caught up in a regulatory quagmire, he said.
BI said the study focused on Europe because the region is seen as the most advanced in adopting ESG principles. ESG investing has clearly “moved into the European mainstream from its role as a niche strategy,” said Jackson Gutenplan, a senior associate at BI who took the lead on compiling the survey.
He said the survey also showed that almost half of European asset managers expect to allocate a larger part of their budgets to ESG from a year earlier,. In addition, as regulations mount, none of the respondents plan to spend less on ESG initiatives and compliance.
Gutenplan noted in order to avoid government scrutiny, many traders will shun business with firms that fail to meet specific codes of conduct, including data privacy, anti-corruption and ethical internal controls, or firms that fall under national sanctions.
Smaller firms, or those managing less than £1 billion, allotted more importance to all three of the ESG components than their larger peers, Gutenplan said.
Only 12% of large firms, those overseeing more than 15 billion pounds, ranked the environmental component of ESG as “very important,” compared with 39% for medium-sized firms and 47% for small firms.
As for social considerations, they rank as the least essential pillar among traders, Gutenplan said. It’s considered the broadest category of ESG, with diversity weighing in as the most prominent issue.
However social also includes topics such as operational health and safety, community rights and relations, customer welfare and marketing.
