ASSET OWNERS MAKING SIGNIFICANT ALLOCATIONS TO ESG WITH MORE CAPITAL ON THE WAY, ACCORDING TO CFA SOCIETY NEW YORK SURVEY
Mainstreaming of ESG reflects broader effort to reform capital markets, with 60% of asset owners excited about the Business Roundtable statement about a shift to stakeholder capitalism
NEW YORK, October 8, 2019 — Institutional asset owners are aggressively embracing ESG, with 45% reporting that ESG is fully or significantly integrated across their portfolios and 39% planning to more formally integrate ESG into their investment processes. That’s according to a survey of 89 asset owners who were in attendance at the 2nd Annual ESG and Climate Asset Owner Summit (“ESG Summit”), which was hosted by the CFA Society New York (“CFANY”).
In total, more than 200 asset owners — such as pension funds, sovereign wealth funds, insurance companies, family offices, endowments and development finance institutions — with more than $15 trillion in combined assets attended the ESG Summit, which was held on September 23-24, 2019 in New York as part of Climate Week NYC.
“Asset owners have a tremendous amount of power and influence when it comes to shaping the future direction of the global capital markets,” said Daniel Dagen, CFA, CEO of CFANY. “As the world’s sustainability challenges become more severe and urgent, these asset owners are sending a clear message to the financial services industry: ESG and sustainability must become the new normal.”
“The twin cousins of finance and capitalism must evolve to meet the needs of today’s world,” said Hiro Mizuno, Executive Managing Director and CIO of Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund. “It’s time for the investment community to accept its social responsibility, which means working to minimize, mitigate, and reverse any negative externalities caused by our investments.”
“At a minimum, this means they must start integrating environmental, social, and governance data into their investment process immediately,” he added. “Too many asset owners say they are waiting for standardized data or more academic proof. But in investing, as in many industries, if you wait until a theory is fully proven it’s already too late. The ESG movement shows us a path forward to a more sustainable form of capitalism that can contend with systemic threats like the climate crisis.”
The survey showed that asset owners broadly agree with Mizuno, who was one of the keynote speakers at the ESG Summit and also sits on CFANY’s Asset Owner Advisory Board. The majority of asset owners said that they were excited about the recent Business Roundtable statement on the “purpose of a corporation” to serve all stakeholders, with 60% saying that “the statement shows that the ESG movement has momentum.” In contrast, only 17% called the statement a “publicity stunt with no substance” and even fewer (8%) said that the statement “undercuts accepted notions of managerial accountability to shareholders.”
The survey also found that:
- Asset owners are integrating ESG across their portfolios: Nearly a quarter (21%) of asset owners surveyed said that ESG is fully integrated across their portfolio while an additional 24% said they have significant allocations to ESG (representing at least half the portfolio). More than a quarter (29%) said that they have no specific allocations to ESG within their portfolios.
- Asset owners are committed to continued learning about ESG: Asset owners picked education as their top priority over the next 12 months, with 42% planning to educate their supervisory board on the importance of ESG and sustainability issues, and 36% planning to train existing staff on how to use ESG data. Other immediate priorities for asset owners included more formally integrating ESG into their investment processes by updating existing policies or adopting new ones (39%) and hiring additional ESG specialists (24%).
- Uncertainty over ESG data presents the biggest challenge for asset owners: More than half (51%) said that the “lack of quality ESG data” was their biggest challenge in allocating to ESG-oriented investments. This easily topped the other survey choices, which included: “skepticism over the viability of ESG” (15%), “political or regulatory uncertainty” (14%), “confusion over industry terminology” (10%) and “lack of quality fund managers” (10%).
- Risk/return opportunities are driving growing adoption of ESG: A combined 59% of asset owners cited “evidence of the materiality of ESG issues” (35%) and “opportunities to generate alpha” (24%) as their biggest motivators in allocating to ESG- or impact-oriented investments. More than a third (38%) pointed to “growing investor or beneficiary demand” while virtually nobody cited “regulatory or political pressure” (3%).
- Consensus is beginning to emerge on ESG metrics: While 33% of asset owners use internally developed ESG metrics to build and monitor their portfolios, the industry standards with the most widespread support include: the PRI (42%), UN SDGs (25%), SASB (22%) and TCFD (20%). Only 24% said they do not use any measurement or reporting metrics or standards.
In addition to Mizuno, several of the 130+ speakers who participated in the ESG Summit include:
- Ariel Fromer Babcock, CFA – Managing Director of Research, Focusing Capital on the Long Term (FCLTGlobal)
- Ken Bertsch, JD – Executive Director, Council of Institutional Investors
- Urs Bitterling, PhD – Head of Corporate Responsibility, Allianz
- Amit Bouri – CEO and Co-Founder, Global Impact Investing Network (GIIN)
- Mark Campanale – Founder and Executive Director, Carbon Tracker Initiative
- John Goldstein – Head of Sustainable Finance Group, Goldman Sachs
- Jodie Gunzberg, CFA – Managing Director and Chief Investment Strategist, Graystone Consulting (a business of Morgan Stanley)
- Kerry Kennedy – President, Robert F. Kennedy Human Rights
- Angela Miller-May – Chief Investment Officer, Chicago Teachers’ Pension Fund (CTPF)
- Deborah Ng – Director of Responsible Investment, Ontario Teachers Pension Plan (OTPP)
- Valentijn van Nieuwenhuijzen – Chief Investment Officer, NN investment Partners
- Anne-Maree O’Connor – Head of Responsible Investment, NZ Super Fund
- Torben Möger Pedersen – CEO, PensionDanmark
- Fiona Reynolds – CEO, Principles for Responsible Investment (PRI)
- Sanford Rich – Executive Director, NYC Board of Education Retirement System (BERS)
- Lynn Forester de Rothschild – CEO and Founder, Coalition for Inclusive Capitalism
- Frédéric Samana – Head of Responsible Investment, Amundi
- Miyuki Zeniya, Head of Sustainable Finance, The Dai-ichi Life Insurance Company
The full agenda is available at: https://www.cfany.org/event/2nd-annual-climate-and-esg-asset-owner-summit/
The ESG Summit is part of the Asset Owner Series™ (“AOS”), a collection of events which convene investment executives for candid, collaborative discussions to help them better fulfil their fiduciary mandates. Tom Brigandi, CFA, has been AOS’ lead organizer since the series’ inception in 2015, and has since brought together asset owners and institutional investment consultants that cumulatively oversee in excess of $72 trillion of assets under ownership or advisory to share their views at AOS events.
Many different CFA Societies from around the world took part in the ESG Summit, including: CFA Society Atlanta, CFA Society Boston, CFA Society Japan, CFA Society Mexico, CFA Montreal, CFA Society Netherlands|vba, CFA Society Peru, CFA Society Philadelphia, CFA Society San Francisco, CFA Society Switzerland, CFA Society Washington, D.C.
About CFA Society New York
CFA Society New York is the largest of more than 150 member societies of CFA Institute. Its activity began in 1937, when value investing pioneer Benjamin Graham began organizing regular meetings of local security analysts. Throughout its history, the society has remained a volunteer-led, member-driven forum for the investment community with the broad, basic aims of: establishing and maintaining a high standard of professional ethics, improving analytical techniques, supporting the interchange of ideas and information among analysts, and promoting a proper public understanding of the function of security analysis and the operation of the securities markets.
CFANY works in conjunction with CFA Institute to develop the industry’s future professionals and to raise the standards of professionalism in the investment management industry. For more information, visit www.cfany.org or follow us on Twitter @CFANY.