When it comes to ESG, those who confine themselves to the paper reality may believe that asset managers are becoming increasingly similar. Those who look deeper however see a different picture: European asset managers not only remain in the lead, but are also converting their paper promises into actual ESG integration.
The latest edition of an annual survey conducted by Altis, a Dutch specialist firm in the field of manager selection, part of NN Investment Partners, shows that asset managers in Europe are serious about making ESG part of their operations.
Altis’ research focuses on 60 parties with whom it has placed client assets. It examined 220 investment strategies on ESG parameters and requested information on ESG policy documents, signed initiatives and activities concerning active ownership. It also studied the actual ESG integration and the data used by investment teams.
The scores of asset managers from continental Europe are the highest, followed by parties from the United Kingdom and the United States. The exclusion policy is relatively unchanged compared to 2021, but European parties are in the lead. Some parties do not exclude listed companies across the board, but depending on their strategy.
Differences in practical implementation
The parties surveyed by Altis are increasingly signing declarations of principle, such as the PRI, but also the Net Zero Commitment, the Climate Action 100+ and the UN Global Compact.
However, Altis said that “signing up to these initiatives, like the PRI, threatens to become a hygiene factor”. The distinguishing factor, however, lies in the practical implementation of these strategies, and that is where the differences are great.
In this context, ESG teams play an important role; 95 percent of the parties now have such a team. This shows that 93 percent of the strategies make use of the information from the ESG teams. But the added value differs greatly from team to team.
Parties are transparent about their voting and engagement policies, but much less so about their exclusion policy and the companies that are actually excluded. The code of conduct is also often not shared.
It is also striking that in the case of voting policy the asset managers almost always vote in accordance with the proposal of the external provider. As a rule, the effectiveness of the policy depends on its implementation.
SFDR ratings diverge
Based on discussions held with asset managers, Altis expects changes in SFDR classifications. Many Article-6 strategies have been classified as hesitant before, partly because of the still missing details of what exactly is expected by the regulator per Article. Altis has the expectation that most strategies will receive an Article-8 classification.
“This raises the possibility that the Article 8 classification could become a catch-all for strategies with different ESG integration,” Altis concluded. “If the majority of strategies have an Article 8 classification, determining ESG integration does not become easier for the end investor.”
Altis expects that this situation will improve from January 2023, when asset managers will have to report on several ESG characteristics under the so-called Principal Adverse Impact indicators, or PAIs.
“Whereas the current classification is still fairly general, the PAIs will show in more detail how ESG is integrated into the strategy,” it said. “This will help the investor distinguish between the various Article 8 funds.”
This article originally appeared in Dutch on InvestmentOfficer.nl.