In a recent survey conducted by Morningstar Indexes and Morningstar Sustainalytics of asset owners, a majority said that ESG factors are material to their investment process. However, at the same time, only a minority of these players said that ESG factors are considered for more than half of their firm’s total assets under management.
Key Survey Findings
Late last month, the Morningstar Indexes and Sustainalytics groups published its first Voice of the Asset Owner global survey of institutional asset owners. This global quantitative study included 500 global asset owners from 11 countries representing approximately $32.7 trillion in assets under management. Asset owners taking part included insurance, OCIO/multi-manager, family office and sovereign wealth, as well as pension funds. Sixty-four percent of those surveyed oversee more than $1 billion in assets, 36% more than $10 billion and 12% more than $100 billion. A few of the key findings from this survey include:
- ESG Widely Considered Material. The vast majority (85%) of survey respondents believe ESG factors are material to investment policy. Most (70%) feel ESG factors have become more material in the past five years.
- ESG Ratings, Data & Tools Improving. About two-thirds of asset owners surveyed have seen a marked improvement in the quality of ESG data, ratings, indexes and tools available over the past five years, with just one in ten seeing a decline in standards.
- ESG Ratings, Data & Tools Still Have Room for Improvement. Asset Owners still see plenty of room for improvement in ESG data and tools, with nearly half (48%) saying they would benefit from more accuracy, 42% from more timeliness, and 41% from more objectivity of ESG data. Furthermore, developments in regulation, data, reporting, analytical tools and investment processes appear to be interdependent, with each aspect shaping, and being shaped by, the others.
- Greenwashing Remains Problem for ESG Investing. More than six in ten respondents cite greenwashing as a problem with the current state of ESG investing. 23% consider this to be a major problem while 38% see this as a moderate problem. Only 11% don’t see greenwashing to be a problem.
- ESG Implementation Still Going Slowly. Only 29% of the asset owners surveyed say ESG factors are being considered for more than half of their organization’s total assets under management. When asked about barriers to full implementation of ESG strategies, asset owners cited concern about impact on returns (38%), lack of available products (30%), and reluctance of clients and stakeholders (30%) as top factors.
Morningstar Indexes Head of ESG Strategy Tom Kuh commented on some of the key findings of this survey, saying “Findings show ESG considerations to be a major driver of asset owner investment policy, but we’re still far from full investment portfolio implementation. Probing this mismatch, our survey uncovered the reasons why ESG implementation is a slow roll. We were reminded through our discussions with asset owners of all shapes, sizes and approaches around the world that ESG investing is complex as well as diverse and is progressing at different speeds and stages. We were also reminded that, despite their differences and the fact that each is on a different stage in their own ESG journey, asset owners are quite unified in their ESG commitment.”
Many of the findings from Morningstar’s first Voice of the Asset Owner survey were not terribly surprising as ESG factors are widely considered to be material to their investment processes. In addition, data quality and greenwashing remain areas of concern for asset owners.
However, the one finding which was surprising was that despite asset owners’ belief that ESG factors are material considerations for investing, that only 29% of asset owners have implemented ESG factors to more than half of their AUM. In other words, asset owners’ words and actions regarding the importance of ESG don’t match up for a variety of reasons. While we agree with the survey’s authors that asset owners are all at different stages in their ESG journeys, we wonder if asset owners’ actual commitment to ESG will ever match their pronounced support for ESG.