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ESG: Important Criterion or “Well-Intentioned Window Dressing” for Institutional Investors?

31/03/2017

A number of investment managers have recently launched SRI and ESG investment strategies. Is demand from UK pension schemes growing to the degree that the industry hype suggests, or are these managers jumping the gun? Annalise Toberman, Head of Insight at RiF offers her views.

As we began analysing the results from the first wave of our UK Institutional Market Study, back in November 2015, the Research in Finance team undertook the unenviable task of trawling through every local government pension scheme’s Annual Report. Aside from aggregating information on current asset allocation and recent changes to mandates, we sought to understand how much importance the schemes were placing on Environmental, Social and Governance (ESG) principles. Mounting press attention and general industry chatter suggested that these factors were really gaining traction. There was also a sense of inevitability about institutional investors in the UK finally boarding the ESG train: we increasingly lagged our European counterparts on these principles, and a growing body of evidence pointed to them having a positive effect on long-term performance.

In this context, we were surprised to find a muted response to ESG from the local government schemes. Just over a tenth were taking action beyond simply joining industry bodies – i.e. talking about the issue – and expecting investment managers to consider the principles on their behalf. The findings from our online survey of schemes, investment consultants and corporate advisers confirmed that ESG investing remained a minority sport for UK pension schemes. Deficits and longevity risk were weighing heavy on the minds of scheme managers and trustees – and of course, continue to do so. With this mind-set, there is a reticence to embrace investment strategies that could restrict returns, at least in the short term.

A year on and our research indicates that ESG remains of secondary importance to schemes and consultants. It ranks low relative to other factors in investment manager selection. Most scheme managers and trustees report that they don’t engage with ESG principles at all, or that they only do to the extent that they expect investment managers to have a clear ESG policy. One cynical scheme manager commented, “I consider ESG to be nothing more than well-intentioned window dressing.”
Yet lack of enthusiasm for ESG is not universal. In fact, a sizeable proportion of larger UK schemes are taking ESG more seriously, including it as a criterion for selecting managers across the board or investing/ planning to invest in ESG-themed mandates. Additionally, some are employing a specialist consultancy such as Pensions & Investment Research Consultants or Hermes EOS to help them improve their corporate engagement.

Returning to the opening question, ESG hype does appear to be outpacing actual demand, but it feels like the growth potential is there, and it certainly doesn’t hurt to build a track record in this area. What remains to be seen is whether regulation will come along to spur ESG investing in the UK, or if the investment management frontrunners will have to play the long game.

If you’d like to hear more about UKIMS please drop me a email.

4 years, 200 projects, 1000s of respondents and Europe….

10/03/2017

We’re celebrating – we’ve just completed our 200th research project and our 4th year in business.

To the many thousands of individuals who’ve given up their time to talk to us, taken part in one of our focus groups or our online surveys – your thoughts, ideas and responses are making a massive difference. And to all of our clients, we hope we continue to bring clarity, direction, opportunity and help to make your business better! We now work with more than 30 asset managers, platforms and life companies across the UK and Europe.

Many thanks for your continued support.

To anyone who has a business in financial services and hasn’t spoken to RiF yet, our number is: +44(0) 207 104 2235 or email.

Through our panels Research in Finance has unique access to the following:

Retail audiences:

  • Private investors
  • Wealth managers
  • Financial advisers
  • Paraplanners
  • Discretionary fund managers
  • Fund of fund managers

Institutional investment influencers in DB/DC:

  • Pension scheme managers
  • Pension scheme CIOs
  • Trustees
  • Consultants
  • Independent trustees

Our broad experience ensures that by using a combination of methodologies we are able to help with:

  • Media and communication
  • Brand awareness
  • Benchmarking and competitive analysis
  • Product concept, development, testing and suitability

New for 2017

Following the success of UKIMS (UK Institutional Market Study), we are also pleased to announce the imminent launch of EIMS (European Institutional Market Study).

Across Europe pension funds, their fund managers and governments are facing challenges associated with ageing societies combined with economic environments that make yields and returns harder to come by than historically has been typical. Policy makers and regulators are responding with measures to increase reliance on private and workplace savings in retirement.

Through a mixture of quantitative surveys and further in-depth qualitative interviews with key respondents, EIMS will focus on key European pension markets on a country by country basis launching with the Netherlands and Germany.  We believe a market specific approach is required to take into account up-to-date and upcoming regional developments in pensions legislation and regulation (eg: the growth of insurance-based APF schemes in the Netherlands and ongoing German DC retirement liberalisation).

Adele Gray, Research Director

Email Adele for more information

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