The European fund industry is becoming “overly reliant” on ESG scores according to a study by Ninety One, which has found 88% of fund management professionals use these in their investment processes.
The study also found that 92% of its respondents expect to increase that use of ESG ratings in the future.
According to Ninety One, these findings reinforce the notion the investment industry is relying too heavily on ESG ratings and, at the same time, overlooking companies that make the “right sustainable choices”.
The asset manager added that ratings do not account fully for a company’s management of its externalities, such as the impact on the environment, interactions with local societies, and the potential of its employees.
Deirdre Cooper, co-head of thematic equities and co-portfolio manager (global environment) at Nintety One, commented: “We believe optimising ESG ratings will not generate long-term portfolio outperformance.
“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.”
She added: “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.”
With regards to other ESG topics covered by the survey, Ninety One found that 68% of respondents have – or plan to have – a sustainable investment allocation to emerging markets equities.
Ninety One’s survey also found that the majority (81%) of fund management professionals consider the diversity of investment teams when choosing a fund manager.
Ninety One surveyed 130 management professionals, including fund managers, intermediaries, asset owners and consultants, at the FundForum conference earlier in May.
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