Nearly one third of asset owners do not contractually require fund managers to follow the owner’s responsible investment strategy for all or a majority of assets under management according to a report from The UN Principles for Responsible Investment.
The PRI found that the number of asset owners embedding responsible investment considerations into contracts is noticeably lower than the number considering it during selection and external initiatives and frameworks are often not referenced.
Asset owners usually assess managers’ responsible investment criteria by reviewing their overall approach and policy, while factors such as the organisational culture and oversight/governance are looked at the least, but still typically considered (see graph).
The most common requirement is for managers to incorporate material environmental, social and governance factors in all investment analyses and decisions. This was required by nearly three quarters, 72%, of asset owners for their actively managed listed equity assets, in contrast to just 55% for passively managed listed equity assets.
Monitoring a manager’s alignment with the asset owner’s responsible investment strategy is common, but many do not monitor how ESG incorporation affects financial and ESG performance.
The report analysed responses from 454 asset owner signatories that participated in PRI reporting in 2021 with Aon supporting with data analyses. Members of Aon’s Responsible Investment team and its Centre for Innovation and Analytics in Singapore structured and analysed the data to identify salient themes.
The PRI also said there is much to celebrate about asset owner signatories’ responsible investment practices. The number of asset owner signatories has grown at around 15% each year and reached nearly 700 in early 2022 with over 90% having a public responsible investment policy.
Climate change was the dominant theme with more than 85% of asset owner boards having oversight of climate-related challenges, and three quarters starting to take steps to implement the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations.
Human rights, modern slavery and biodiversity were mentioned infrequently with diversity, equity and inclusion rarely mentioned, particularly outside North America.
Responsible investment practices are less common in certain asset classes, such as hedge funds, and in particular strategies/approaches, such as passive investing.
Senior leadership statements from many asset owners talk about plans to expand the sophistication and breadth of responsible investment practice and the PRI said it will continue to grow its suite of resources for asset owners to support their development in these and other areas.
