June 8, 2020

Monday Morning Memo: ESG Investors Need Transparency

by Detlef Glow.

The global fund industry has come under pressure as asset managers have witnessed an increasing demand for ESG investments. An increasing number of investors want to make a positive impact on ecological and/or social goals with their investments. Therefore, they would need more transparency on the integration of ESG criteria within the portfolio management process, as well as on the voting and engagement policies and other activities of the respective asset managers.

Despite the increasing demand from investors, some asset managers are still quite reluctant to report on their policies and activities. One example for this would be a report on the votes made on behalf of fund investors at the annual shareholder meetings of the companies in which the fund is invested. That said, I am sure that this will change over time since investors need this information to identify the asset managers who suit their needs best. They will, therefore, stay away from asset managers who are not able or willing to publish these respective reports. There is already increasing regulatory pressure on asset managers to be more transparent about ESG disclosure, and this will finally lead to a mandatory disclosure policy.

Since these trends are already happening in the market, or at least clearly foreseeable, I am wondering why there are not already more asset managers who have been publishing ESG-related reports on their products. This might help attract new investors, which is quite common for first movers. Additionally, a number of asset managers have to work on their communications regarding their ESG processes to ensure that investors know how they are integrating ESG data in the portfolio management process. That said, clear communication—which is not mainly driven by the marketing department—may help asset managers avoid becoming suspects for greenwashing or the usage of a simple box-ticking approach. Both may harm the reputation of an asset manager once discovered by the public.

The views expressed are the views of the author, not necessarily those of Refinitiv.

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