Eurosif has just published a ground-breaking report on Investment Consultants and Responsible Investment. The study, sponsored by AXA Investment Managers, Bank Sarasin, Robeco and SAM, found that 89% of investment consultants anticipate an increase of client interest when it comes to environmental, social and governance (ESG) issues.
The demand for investment consultants to take into account ESG issues is driven by a mixture of investor reputation, beneficiary pressure and an evolving view on fiduciary duty. All of these drivers create opportunities for ESG advisory services.
Melissa McDonald, head of responsible investment at AXA Investment Managers says, “This study has highlighted two key challenges for asset managers who are committed to delivering sustainable and better risk adjusted returns. It is clear that there is a lack of understanding around the contribution of ESG investment to the sustainability of returns and a resulting lack of explicit client signals within the institutional investment process; it is these challenges that we at AXA IM want to respond to as part of our long term commitment to the mainstreaming of ESG.”
Three different types of institutional investors are behind this trend: corporate pension funds, public pension funds and family offices or high net worth individuals. Their interests range from advice around thematic investing to counsel on integration of ESG issues across all asset classes.
Frank Wettlauffer, Head Institutional Clients International at Bank Sarasin states, “With increasing numbers of sustainable strategies, asset classes and products, it is becoming easy for institutional investors to invest in attractive products and styles. Consultants screening the financial offerings in the market place therefore play an increasingly important role.”
This study reveals that investment consultants offer a diverse product range of ESG services. As investors delve more deeply into ESG matters over time, client demand will continue to be varied. Investor demands focus on all aspects of responsible investment (RI): how to incorporate RI into their investment strategy, mandate design, investment policy, fund selection and selection of external research providers.
Fernand Schürmann Senior Vice President at Robeco says “We sponsored Eurosif’s study because we believe it is of great importance to show how the inclusion of sustainable items in investment decisions can add value. We believe that the consultant community is key to this development to gain further momentum for asset owners and asset managers.”
Ruud Wilders, Head of Marketing, Communication and Sales Management at SAM states, “One of our key conclusions from the study is that investment consultants and their clients still require more robust information on the link between ESG factors and investment performance. The report shows that 36% of the consultants evaluate the fund manager’s ability to incorporate ESG as a routine part of their assessment of fund manager competence. As such, we look forward to playing a role as a discussion partner on this topic.”
Barriers certainly exist that prevent consultants from quickly developing their ESG service offerings, and key among them is the need for greater education and training. Additionally, asset owners need to be more explicit about RI by clearly stating their beliefs on ESG issues and responsible investment.
Matt Christensen, Eurosif’s executive director says, “Service development will remain a key facet to monitor as it is not yet clear whether newer or established firms will best respond to the growing ESG demand for services. Certainly, the Eurosif study shows that some firms are aggressively developing products and services in anticipation for further market growth in the coming years.”
The US Social Investment Forum is releasing a similar study today, focusing on US based consultants. Both the European and US reports show parallel trends in terms of expectation of future growth, drivers and current practices of the consultants. Differences are found in the type of strategies most in demand. For instance, European clients seek more advice on positive selection than their American counterparts. Lisa Woll, CEO of the US Social Investment Forum, explains, “The virtual consensus among European and US investment consultants that client interest in ESG will grow is very positive. However, both our studies make clear that much remains to be done to ensure that the industry is proactive in offering ESG related services and sufficiently knowledgeable to respond effectively as client demand grows.”
To view the Eurosif report please go to http://www.eurosif.org/publications/investment_consultants_ri
To view the report from the US Social Investment Forum please go to: http://www.socialinvest.org/resources/pubs/documents/Investment_consultant.pdf