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Groundhog Day isn’t until February. But it’s no wonder Reddington’s team feels stuck in a time loop with “six weeks left of winter” when it comes to implementing ESG.
After examining the results of the annual survey, we found that Survey on sustainable investing The report, released in mid-December, found that too many investment managers appear to have been trapped in a cycle of over-promising and under-delivering in recent months.
Data from the latest survey is representative of the entire market, with 127 participating managers and totaling £39tn of assets under management.
This is our sixth year of collecting this data, and our fourth year of fully reporting the data, and not enough has changed in that time.
See: – Green Dream with Redington’s Lee: Customers are demanding managers do a better job.
Diversity
An overwhelming 97% of managers agree or strongly agree that diverse teams improve their ability to deliver more effective investment strategies. No one can argue with that statement.
However, only half (49%) of managers have set goals to improve gender diversity, and just one-third (32%) have set goals to improve racial diversity. The number of goals regarding the characteristics of is even smaller.
Companies still hire twice as many men as women on their investment teams. That’s slightly higher than the current average of 23% of women on teams, but that doesn’t immediately move toward equity. Approximately 6% of investment teams do not include any women.
It seems that some administrators are also deceiving themselves. One in four people on their team (26%) strongly agree that their investment team reflects the characteristics of national and regional diversity. However, fully half of these respondents have less than 30% of their female population.
These data points highlight gender diversity, in part because enough managers report on gender diversity to make the data understandable. The fact that many managers do not capture and report on other aspects of diversity means that they are simply unable to effectively address them.
stewardship
There is a huge difference between the number of managers and strategies that claim that a particular ESG issue is a “priority” and the number that can actually demonstrate engagement with that priority.
At the company level, this gap is approximately 20-30%. For example, 92% of companies say climate change is a priority (what do the other 8% think?), but only 64% can show evidence of commitment. At the strategic level, the difference is even greater, between 40 and 50%.
On climate, 95% of strategies say they prioritize climate, but only 43% can provide evidence that they are taking action on it.
See also: – Asset managers are slow to adopt engagement roles
Perhaps this reflects a lack of systems to capture and report on stewardship activities, but also that stewardship requires continuous monitoring and evaluation of progress. When you think about it, you can never feel safe. Systems are essential for this, and many off-the-shelf systems are now available.
When we analyze the engagement case studies that managers publish in their Stewardship Code reports, there is a significant lack of significant outcomes. Almost three-quarters (73%) of case studies now concern substantive issues. A similar proportion indicates a manager’s proactiveness, but only 28% discuss results in a way that reassures managers that their activities have real importance.
This is particularly unfortunate given that these case studies represent a sample of a wide range of activities that managers choose to highlight. I can’t help but think this is the best outcome of their management work.
See also: – Asset managers’ efforts to tackle climate change are “cosmetic at best”
On the positive side, we have seen improvement in several areas. Hiring levels for ESG and stewardship professionals fell sharply this year, following a boom over the past two years. From a long-term perspective, the story remains positive.
Managers’ interest in impact strategies is also noteworthy. More than 40% of managers are already running such funds, with £859bn invested in impactful solutions.
Real world impact
However, our assessment of the manager suggests there is much more work to be done. It’s worth saying that these ratings do have an impact.
Our Priority List (managers we recommend to clients for specific investment strategies) manager research process strongly urges us to meet and hear from at least one investment team member from an underrepresented group.
This can tell you a lot about your organization’s culture and team decision-making, which is a key factor in achieving future investment performance.
Additionally, clients are increasingly focused on the diversity of their investment teams. It is likely that there will be cases where managers who lack diversity are removed from the process or replaced.
See also: – ShareAction: Asset managers’ use of escalation in engagement is “ineffective”
Similarly, we removed some managers from our priority list due to their poor management track record.
Two of Reddington’s clients changed administrators in the last year. This was, at least in part, due to our assessment of the existing provider’s management capabilities and approach. Other managers are also taking note, and we expect to see more such changes in the coming years.
These are just some examples of growing trends. Investment managers that do not effectively incorporate material sustainability risks, including climate change, into their processes are unlikely to convince clients that they can perform well in the world of the future.
It’s not enough for us all to say the same thing every year. Managers who don’t change risk being left behind like a groundhog in the Pennsylvania snow.
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