Asset AllocationApril 10, 2019

ESG Grows More Popular with Asset Managers

Some 75% of asset owners and 62% of asset managers hold ESG funds, BNP Paribas study says.

Reported by Larry Light

The environmental, social, and governance (ESG) movement is gaining more traction with asset owners and managers. A BNP Paribas study found that 75% of owners and 62% of managers held ESG funds as a quarter or more of their investments last year.

That’s compared to 48% and 53% in 2017. The biggest barrier to using ESG wasn’t its cost but rather a lack of tools to assess investments, the survey said.

ESG seeks shares in companies that embody a range of the concept’s values, often corporate tax transparency, climate change, gender diversity, executive pay, living wage expectations, and board responsiveness.

US firms are ahead of the rest of the world in embedding ESG capabilities within their organizations, with 29% of American participants reporting that ability, versus 23% globally. US activist funds like Jana Partners are catalysts for ESG. Jana teamed with the California State Teachers’ Retirement System to persuade Apple to address child dependence on iPhones, the report said.

There’s a lot of evidence that ESG is spreading as a credo among investors. A $23 billion Dutch pension fund, Pensioenfonds Detailhandel, last month announced that it was axing a third of the corporate stock in its portfolio, in keeping with ESG precepts.

And a church group, including denominations like the Church of England and the Methodist Church, also in March said it was pressing harder to get FTSE 350 companies to adopt ESG goals, which the group felt was proceeding too slowly.

Companies with high ESG scores in the eurozone posted annualized returns of 6.6% from 2014-2017 versus an annualized loss of 1.2% three years before, according to a study by French asset manager Amundi.

The Paribas study also discovered that two-thirds of firms are adopting policies set by the United Nations’ Sustainable Development Goals statement.