Asset managers will need to take greater ownership of environmental, social, and governance (ESG) exclusionary processes, as oversight of ESG investing tightens, according to State Street Global Advisors (SSGA).
SSGA’s latest ESG report said that while exclusions had become more widely used, many institutions had come to rely on third party ESG data providers for screens of topics they wished to exclude.
However, investors were beginning to question the data and methodology powering the exclusionary lists.
“The increased scrutiny of all ESG investment products by both regulators and activists, in 2020, we expect it to become increasingly untenable for investors to fully outsource their exclusionary screening methodologies and keep their involvement at arm’s length,” SSGA said.
It noted that the choice of a data provider’s methodology and which companies were included in their overall universe could have direct and differentiated impacts on a portfolio.
The report also said ESG strategies would become more complex as investors were beginning to set multiple ESG objectives within their portfolios.
“For example, fully eliminating exposure to certain sectors while minimizing exposure to underperforming companies and also setting broad emissions reduction targets across the portfolio,” it said.
This, it said, had implications for both portfolio construction and product development.
“The increased incorporation of ESG into index portfolio construction will further mainstream ESG investing within active strategies,” SSGA said.
“This along with the evolving understanding of fiduciary responsibility means that active managers who do not incorporate ESG into their company due diligence and investment processes will need to explain why they don’t see ESG as a portfolio risk or investment opportunity.
“Investable products, too, will respond to investors’ evolving ESG goals. We expect to see the methodologies of existing product suites being updated to reflect multiple ESG objectives, and a growth in new investable solutions to meet the variety of more complex demands emerging in the market.”
Investors have slashed their US equity allocations to the lowest level on record, according to new data from Bank of America.
The message from experts in international trade and economists is that the Australian government should refrain from retaliating with reciprocal tariffs.
The market correction forecast by AMP’s chief economist is in full swing, with three weeks of turbulence culminating in significant losses on Tuesday.
Following a strong risk appetite in January, institutional investors have pulled back in February, with risk-seeking activity dropping to zero amid a decline in equity allocations.