Australasian institutional investors are more likely to award a mandate based on a manager’s environmental, social and governance (ESG) record than global peers, a recent survey has found.
Madhu Gayer, BNP Paribas Securities Services investment analytics and sustainability manager, said 64 per cent of Australian and NZ institutional investors had selected a manager using ESG criteria.
Only about half of investors in other jurisdictions had current mandates where ESG was pivotal in the selection decision, Gayer said.
The 2019 BNP ESG survey follows on from a similar effort in 2017 that found Asia-Pacific investors were more upbeat about ESG than European and US counterparts.
“In 2019, this conviction continues, with Asia Pacific respondents more likely to align their investment framework to the [United Nations Sustainable Development Goals] SDGs (76%), to award a mandate to a manager based on their ESG capabilities (64%) and to expect their ESG portfolios to outperform (70%),” the survey report says. “Asia Pacific respondents also look to have at least 50% of their investments in funds that incorporate ESG, again well ahead of North America and Europe.”
According to Gayer, the latest survey also picked up a big change over the two-year period with investors now expecting more detail from managers about their ESG track record and expertise.
In the latest survey 46 per cent said a track record was one of the most important factors in evaluating ESG managers compared to just 14 per cent in the 2017 report.
The BNP study found the SDG framework – which includes 17 core goals aimed at improving the human condition – is proving more influential in setting ESG investment strategies.
About 65 per cent of those surveyed said their investment framework was “aligned to the SDGs” and a further 15 per cent planned to follow suit.
“Australian and NZ investors were even more aligned to the SDGs than the rest of the world,” Gayer said.
He said respondents overall were also more focused on measuring SDG portfolio exposure against “data-driven” targets.
Australasian managers again lead the global pack on this metric with 60 per cent setting SDG targets, Gayer said.
The study highlights a growing enthusiasm for sustainable investing generally as 75 per cent of asset owners reported allocating at least a quarter of their portfolios to ESG funds compared to just 48 per cent in the 2017 survey.
For fund managers, the same measure rose from 53 per cent in 2017 to 62 per cent in the latest survey. By 2021 about 90 per cent of both asset owners and fund managers would have 25 per cent or more invested in ESG strategies, the BNP report says.
Improving long-term returns (52 per cent) ranked as the top reason to invest in ESG followed by ‘brand and reputation’ (47 per cent) and lower investment risk (37 per cent).
Despite the ESG enthusiasm, the survey found investors still faced a number of barriers to successful implementation: as per the 2017 report, access to quality data was the number one stumbling block, cited by 66 per cent of respondents.
However, concerns about the cost of technology to manage ESG investments doubled from 16 per cent two years ago to 32 per cent in the latest BNP survey.
Lack of analytical skills (30 per cent) and ‘greenwashing’ fears (21 per cent) also ranked as major barriers to ESG investing.
Gayer said investors were increasingly looking to providers such as custodians to deliver higher-quality ESG data and better analytical tools.
The BNP survey, carried out late last year, tapped 347 institutions across the world, split about equally between the US, Europe and Asia-Pacific, that collectively manage about US$1.45 trillion. NZ contributed six respondents while 26 hailed from Australia.