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Investors identify top ESG criteria for company engagement

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  • Investors identify top ESG criteria for company engagement

UK - UK institutional investors managing an environmental, social and governance (ESG) asset allocation are looking increasingly at executive remuneration, climate change and supply-chain labour standards as key areas for engagement with companies in their portfolios.

In a study conducted by the United Nations-backed Principles for Responsible Investment Initiative (PRI), institutional investors were asked to identify the priority areas for future collaborative engagement to be coordinated by the PRI over the next three years in the ESG domain.

For the investors surveyed - which manage more than $2trn (€1.6trn) in assets - climate change remains top priority, with more than 30% identifying the issue as a key criterion when it comes to monitoring companies within their portfolios effectively.

In comparison, water and unconventional fuels were ranked second and third, with 25% and 17% of investors, respectively, seeing those issues as a key concern.

The survey also showed that, in the social domain, 19% of investors primarily looked at supply-chain labour standards as a key factor, while 17% asked the PRI secretariat to prioritise human rights for future collaborative engagement.

Additionally, 25% of respondents believed executive remuneration was key in the corporate governance arena for engaging with companies over the coming years, and 21% placed the strongest emphasis on board-related issues and said this should be taken into account.

James Gifford, executive director of the PRI, said: "It is clear a company's management of ESG issues does play a role in its ability to deliver sustainable returns to its investors, and users of the Clearinghouse recognise that exercising the rights associated with ownership of the assets in their portfolio is a fundamental part of managing, protecting and enhancing the value of those assets for their clients and beneficiaries."

Institutional investors such as pension funds have increasingly addressed social and environmental considerations in their investments over the past decade.

However, a recent IPE study found that ESG and engagement issues were among the least highly ranked by pension funds when it came to selecting asset managers.

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