Analysis demonstrates that institutional investors still lack explicit ESG investment rules

According to a research by Clearwater Analytics, which surveyed 190 institutional investors representing $12 trillion in assets, institutional investors continue to fail to implement strong environmental, social, and governance (ESG) standards.

45 percent of asset managers, pension funds, and insurers lack defined plans for responsible investment, according to the research.

A third of respondents cited a lack of available and trustworthy data required to evaluate investments from an ESG perspective.

Four-fifths of respondents said that ESG market data for private investment was insufficient. Approximately 79 percent indicated the same for private debt.

Concerns about decreased returns were cited by 16,5 percent of respondents as the cause of the absence of a cohesive programme. In recent years, the dominant opinion has been that ESG is a basic component of modern investment.

This analysis demonstrates that this is not technically accurate, and the absence of trustworthy data, especially in private markets, is a significant impediment, according to Gayatri Raman, president of Europe and Asia at Clearwater Analytics. Less than fifty percent of respondents elsewhere cited insufficient data as a concern for public equity.

Forty percent of participants reported using spreadsheets for climate reporting, despite the fact that fifty percent were required to submit quarterly reports.

“Before anyone can incorporate ESG factors into their investing strategies, data needs to be highly available, high quality, and easy to track. Only then will investors be able to fully integrate these initiatives into their investment process,” said Raman.

Fund managers are growing more worried about the advent of "simplistic criteria" to account for environmental risks, noting the possibility for asset allocation mistakes, investor misunderstanding, and inadequate reporting processes.

Simultaneously, the industry has expressed concern over the complexity of the EU's sustainability disclosure framework, with a key concern being that the Sustainable Finance Disclosures Regulation has not yet been fully implemented and therefore lacks the regulatory technical standards (RTS) or level 2 requirements necessary to complete the reporting.

By fLEXI tEAM