ESG increasingly important to member best interests
Super trustees are increasingly considering ethical investing to be a key part of their fiduciary duty to members, according to new research from State Street Global Advisors (SSGA).
The investment manager’s new report, Into the mainstream: ESG at the tipping point, surveyed 300 institutional investors globally and found that 46 per cent viewed their fiduciary duty to pension fund members as a key driver towards adopting ESG in their investment practices.
A further 46 per cent of respondents saw regulation as another key driver that would force further ESG take-up, with this theme particularly strong among Asia-Pacific investors that were surveyed, the report said.
SSGA APAC head of asset stewardship Ben Colton said that with the adoption of global reporting standards that properly quantified the sustainability of large companies, the idea of ethical investing had turned from a values-based concept to one that was key to running a portfolio in the best interests of fund members.
“ESG is no longer looked at as a trade-off for investment returns, but rather it is now widely recognised as being additive to the investment process,” Mr Colton told SMSF Adviser.
“Investors who do not incorporate ESG into their due diligence and investment processes will increasingly need to explain why they don’t see ESG as a portfolio risk or investment opportunity.”
However, the lack of comprehensive data around what made a quality ethical investment was still acting as a disincentive to many investors getting into ESG investing, with almost half of respondents citing the current state of data in the sector as a disincentive to adopt an ethical overlay in their investment process.
Mr Colton said as a result of this, investors were increasingly taking an independent approach to screening out stocks.
“With greater awareness of challenges in ESG data, investors are beginning to question the data and methodology powering their exclusionary lists,” he said.
“As with broad ESG ratings, the choice of a data provider’s methodology and which companies are included in their overall universe can have direct and differentiated impacts on a portfolio.”