Asset Managers: ESG or Bust

With most institutional investors considering ESG the responsibility of managers, even skeptics need to re-shape how they identify securities.

Illustration by II

Illustration by II

Two-thirds of respondents to Aon’s first survey of global investors on responsible investing considered environmental, social, and governance factors to be important to their organizations; 40 percent have policies in place, and another 14 percent are in the process of implementing one.

Consulting firm Aon analyzed responses from 223 institutional investors, including endowments, foundations, and corporate and public pension plans. According to the firm, interest from millennials and women have driven the trend. Millennials represent the majority of the work force, and want investments consistent with their values.

Institutional investors with socially responsible programs typically believe climate issues, labor practices, and other global issues affect companies’ bottom lines. According to Aon, 39 percent of investors with ESG policies believed they’ll produce better investment results. Twenty-six percent said that choosing investments in part based on ESG factors would impact global issues, such as water use.

Aon also cited an April 2018 Bank of America Merrill Lynch study which found that investors who bought shares in companies with above average ESG scores would have avoided 15 of 17 corporate bankruptcies between 2008 and 2016.

[II Deep Dive: The ‘Slippery Slope’ of ESG Demands]

The importance of ESG to investors means that asset managers need to figure out how to incorporate these issues into their investment processes. But doing so poses challenges. According to Aon, 53 percent of respondents said they need more consistent ESG data; 50 percent wanted better research on the effects on returns; and 49 percent believed that the industry needs to standardize certain terms.


Two-thirds of respondents said that most of the responsibility to incorporate ESG factors falls on external asset managers. Twenty-nine percent of investors reported using outside consultants to oversee ESG.

“More than 38 percent of those polled indicated that their number one hurdle to responsible investing was a lack of consensus about the impact of responsible investing on investment returns,” according to the report.