Knowledge. Experience. Integrity. CALLAN INSTITUTE Survey June 2016 Asset Managers and ESG Sensing Opportunity, Bigger Firms Lead the Charge Environmental, social, and governance (ESG) investing is not a new phenomenon, but it has been expe- riencing rapid growth and change in the U.S. marketplace. To better understand how asset managers are addressing investors’ changing needs in this space, Callan queried these firms on their ESG views and policies. Our survey reveals that the majority of large asset management firms are formalizing their efforts around ESG implementation, via firm-wide policies, third-party affiliations, and other actions, while smaller firms have yet to exhibit widespread adoption. Small 23% Medium 51% Large 73% Firms with a formal ESG policy (by size) small: <$50bn medium: $50bn – $250bn large: >$250bn
Transcript
Knowledge. Experience. Integrity.
CALLAN INSTITUTE
Survey
June 2016
Asset Managers and ESG
Sensing Opportunity, Bigger Firms Lead the Charge
Environmental, social, and governance (ESG) investing is not a new phenomenon, but it has been expe-
riencing rapid growth and change in the U.S. marketplace. To better understand how asset managers are
addressing investors’ changing needs in this space, Callan queried these firms on their ESG views and
policies. Our survey reveals that the majority of large asset management firms are formalizing their efforts
around ESG implementation, via firm-wide policies, third-party affiliations, and other actions, while smaller
firms have yet to exhibit widespread adoption.
Small
23%
Medium
51%
Large
73%
Firms with a formal ESG policy(by size)
small: <$50bn
medium: $50bn – $250bn
large: >$250bn
2
Part of being a sound fiduciary
was another popular reason for
adopting ESG with 56%26% of those not adopting
ESG feel ESG factors are already
accounted for in their current
investment process
41%of all respondents have a
formal ESG policy
Has your firm signed the Principles for Responsible Investment (PRI)?
40% Yes53% No7% Not Sure
Results reflect responses from 180 asset management firms representing more than $42
trillion in assets under management (AUM). While more than half of asset management
firms (56%) do not have a formal ESG policy, and a similar percentage (53%) have not
signed on to the United Nations Principles for Responsible Investment (PRI), the firms
that have pursued these initiatives cite growing client demand as the primary motivation.
For this survey we examined managers by size groups: small (less than $50 billion),
medium ($50 - $250 billion), and large (greater than $250 billion). A greater proportion of
large firms (73%) versus small firms (23%) have a formal ESG policy at the firm level (as
opposed to on a strategy level). The same trend is true for PRI signatories: 82% of large
firms versus 20% of small firms. Further, larger firms tend to be more established in the
space: more than one-quarter (27%) of large firms created their ESG policy more than a
decade ago, compared to 21% of medium firms and 16% of small firms.59%cite client demand as their reason for
adopting ESG
16%
Small 62%
22%27
%
Large 36%
21%
Medium 42%
37%
37%
When was your firm’s ESG policy established?
Within past 2 years
3–10 years ago
> 10 years ago
35%of firms with no ESG policy
have considered adopting one within the last year
Note: Multiple responses allowed.
3Knowledge. Experience. Integrity.
What research process is utilized at your firm?
Managers with an ESG Policy by Research Process
Quantitative, factor/model driven approach
Combination of fundamental & quantitative
Fundamental, bottom-up research*
* this includes basic screening
10%
31%59%
Qua
ntita
tive
Com
boFu
ndam
enta
l
53%
51%
33%
How is research organized within your firm?
Multiple boutique model
Central research platform
Team-based approach
Managers with an ESG Policy by Research Organization
11%
60%
Multiple boutique Central Team-based59% 45% 36%
29%
We also posed questions around research
processes and discovered that firms with
fundamental, bottom-up research are less
likely to have a formal ESG policy (33%) than
those with a quantitative approach (53%) or
that use a combination of research processes.
Research organization also mattered. Asset
management firms that implement a multiple
boutique model are more likely to have a
formal ESG policy (59%) than those with
centrally organized research (45%) or team-
based approaches (36%).
Respondent Perspective
“ We believe that responsible
investing is a core component of
traditional investing. Governed,
sustainable businesses have
the potential to generate strong
results over time.”
4
41%of respondents say ESG
strategies present a market opportunity going forward
Looking forward, all sizes of asset management firms expect client interest in ESG
investing will grow. However, just 41% of the respondents see this marketplace shift as an
opportunity. Again, larger firms tend to be more optimistic about future growth, with nearly
100% sensing slight or significant increases in client interest.
Asset managers that project growth in client interest expect to see that interest coming
from the U.S. and Canada (72%) and Europe (57%). This reflects the survey respondent
population, who are primarily based in the U.S. and Europe, but may also reflect the notion
that European investors are further along in integrating ESG into investment decision
making than their North American counterparts.
Over the next 3-5 years, how do you expect client interest in ESG to change?
Where is this increased interest likely to come from?*
Increase Slightly
Increase Significantly
Small Medium Large
U.S. andCanada
Europe
Asia
Emerging
Australia
72%
57%
16%
5%
4%
100%88%
76%
* Multiple responses allowed.
Around one-third of managers with a formal ESG policy expect it will help them achieve higher risk-adjusted returns and improved risk profiles over the long term
Respondent Perspective
“ We believe that environmental,
social and governance (“ESG”)
issues play an important role
in the global economy, both
from a business and investment
perspective.”
“ Incorporating ESG factors
into the research process
is part of ensuring all risks
and opportunities that could
influence the growth potential of
the company in question have
been considered.”
5Knowledge. Experience. Integrity.
Size matterslarger asset management
firms are taking more actions on ESG
96%of respondents are
active managers
Respondents by Size
How many unique strategies does your firm manage?
We provide further detail on the demographics of respondent firms for reference. Rough-
ly half of the 180 asset management firms that responded to our survey are small (less
than $50 billion in assets), and around a quarter are either medium ($50 – $250 billion)
or large (greater than $250 billion). Respondent firms had a median of $56 billion and an
average of $232 billion in AUM. The vast majority of respondent firms actively manage
their strategies (96%). As one would expect, the smaller respondent firms manage fewer
unique strategies.
Key Takeaways
For asset management firms, it’s clear that size matters when it comes to ESG in-
tegration. Large firms are more likely than smaller firms to have formal, firm-wide
ESG policies, be PRI signatories, and have significant expectations of growing client
interest in the space.
Small<$50bn
53%
Medium$50bn – $250bn
25%
Large>$250bn
22%
0 - 56 - 1011 - 25Over 25
Small Medium Large
100%
65%
30%
8%
37%
29%
26%5%
6
Certain information herein has been compiled by Callan and is based on information provided by a variety of sources believed to be reliable for which Callan has not necessarily verified the accuracy or completeness of or updated. This report is for informational pur-poses only and should not be construed as legal or tax advice on any matter. Any investment decision you make on the basis of this report is your sole responsibility. You should consult with legal and tax advisers before applying any of this information to your particular situation. Reference in this report to any product, service or entity should not be construed as a recommendation, approval, affiliation or endorsement of such product, service or entity by Callan. Past performance is no guarantee of future results. This report may consist of statements of opinion, which are made as of the date they are expressed and are not statements of fact. The Callan Institute (the “Institute”) is, and will be, the sole owner and copyright holder of all material prepared or developed by the Institute. No party has the right to reproduce, revise, resell, disseminate externally, disseminate to subsidiaries or parents, or post on internal web sites any part of any material prepared or developed by the Institute, without the Institute’s permission. Institute clients only have the right to utilize such material internally in their business.
If you have any questions or comments, please email [email protected].
About Callan AssociatesCallan was founded as an employee-owned investment consulting firm in 1973. Ever since, we have
empowered institutional clients with creative, customized investment solutions that are uniquely backed
by proprietary research, exclusive data, ongoing education and decision support. Today, Callan advises
on more than $2 trillion in total assets, which makes us among the largest independently owned invest-
ment consulting firms in the U.S. We use a client-focused consulting model to serve public and private
