Leading asset managers are continuing to raise the bar on sustainable investing, although exits from collaborative initiatives may result in rising fragmented stewardship efforts on systemic risks such as climate change, according to Isio.
The UK investment consultancy recently carried out its latest annual sustainable investment survey and found that at the firm-level, the trend in sustainable investing integration is generally positive or broadly stable, with the exception of the departures from initiatives such as Climate Action 100+ and the Net Zero Asset Managers initiative.
However, Isio found that almost half (46%) of strategies assessed did not provide what it considers to be sufficient fund-level reporting and that ESG-related objective-setting had declined.
In this year’s survey, 39% of funds assessed had adopted formal ESG objectives or focus areas, down from 49% last year.
It found that asset managers were increasingly adopting the use of ESG scorecards and multiple ESG data sources (where relevant) to identify prevalent ESG risks, and that a larger portion of managers were conducting climate scenario modelling.
On stewardship, Isio said there was an increase of capacity within in-house teams, but that evidence of alignment of engagement with stewardship priorities remained a challenge, as a result of many asset managers not having set explicit priorities.
It noted that legal challenges had restricted ESG engagement activities for asset managers with US exposure, but that “stewardship remains a rapidly evolving area within sustainability, and it is exciting to see the market generally recognise its importance”.
Two major pension funds recently indicated that they believe ESG will drive US managers to lose contracts to their European counterparts.
Cadi Thomas, head of sustainable investment at Isio, said: “It’s encouraging to see that progress on sustainable investing continues, even in the face of a wider ESG backlash, particularly in the US. Most firms are holding firm on their commitments, and we’ve seen positive steps forward in areas like reporting and risk management, which are key foundations for long-term integration.
“At the same time, there’s still significant work to do at fund level. Disclosures remain inconsistent, particularly in private markets, and while climate reporting has improved, social and nature-related data continue to lag.”
She added: “Fewer funds are adopting formal ESG objectives, potentially driven by increasing labelling scrutiny. This shift suggests a more cautious approach, likely in response to growing regulatory pressure.”
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