The University of Otago’s climate and energy finance group (CEFGroup) has found despite stakeholder demand for responsible practices, such as environmental, social and governance (ESG) practices, it was often unclear what fund managers were doing to invest sustainably.
CEFGroup’s latest industry report, in partnership with investment research groups Saturn Advice, MyFiduciary and Morningstar, found responsible investing was driven mainly by performance value and attracting investors, not ethical values and responsibilities.
For example, only half of the asset managers surveyed for the report declared their portfolio’s carbon intensity.
CEFGroup deputy director Dr Sebastian Gehricke said it was a basic measure of carbon risk in an investment portfolio, it was possibly the easiest climate metric to provide in terms of data availability and its regular absence made for a "very surprising" finding.
"This is particularly startling as climate change was the most important issue according to the survey.
"Further, of those that did report this metric, around half under-reported, and many did so by a large extent."
Dr Gehricke said the report provided clarity about what fund managers meant when they said they were incorporating ESG issues and concerns.
Policymakers would be able to consider the findings when designing policies, and fund managers could get a better idea of what their peers were doing and where they fit in the sustainable investment fund market.
That could push them to be more ambitious, Dr Gehricke said.
Saturn Advice general manager Peter Dine said there was growing evidence that companies that did embed ESG considerations into their decision-making were likely to achieve superior long-term financial performance.
And the report provided insight into where the funds management industry stood on ESG practices. It also pointed to questions people should ask managers about their sustainability practices, he said.
MyFiduciary principal Chris Douglas said the study helped put a spotlight on how investors and fund managers were responding to growing sustainability demands.
"In-depth analysis like this helps to lift the level of debate within the industry and inform investors and fund managers on good practice and the spectrum of outcomes — from the leaders to the laggards."
A statement provided by the university noted the report was an industry collaboration and not peer-viewed.
The results were based on a master of finance thesis from student Lachie McLean, who looked at managers’ actual portfolio holdings.
