ESG integration by fund managers has increased – but engagement with companies over environmental issues still lags, research suggests.
ESG integration is “steadily becoming the norm” as the number of fund managers receiving a green ESG rating has increased to 36% versus 24% last year, according to XPS Pensions Group which surveyed 53 managers covering 227 funds.
The firm said the annual survey this year suggested the majority of fund managers “now robustly embed ESG factors” into their decision-making.
Other key findings were included that green scores on integration increased from 44% to 54% – but 23% of funds were still unable to provide examples illustrating an E, S or G issue, “which raises doubts” about the credibility of their approach”.
There was an “encouraging increase” in the number of funds reporting data and improving data coverage to do with climate change – particularly within multi-asset, real assets and diversified private markets.
But there are still no private markets managers rated green on climate change, stewardship and reporting, and a high proportion remained red. However, private markets showed some improvements because overall red ESG ratings fell to 7%.
A general lack of positive outcomes resulting from engagement activities is still indicated by the research. Some 56% of engagement examples were rated amber or red. Governance issues were the most common examples of engagement, with “limited” focus on other environmental and social issues.
Also, “only” 53% of firms surveyed provided good evidence that diversity and inclusion was part of their engagement approach, with 12% providing no evidence that this issue was on their agenda.
Alex Quant, head of ESG research at XPS Pensions Group, said: “It’s very welcome to see the great strides many managers have made in steadily making an ESG-focused approach the norm. Our research highlights an overall improvement in approach to ESG this year in comparison to relative stagnation last year.”
But more investment in tools and resourced was needed , Quant added.
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