The amount of boutique asset management firms incorporating Environmental, Social and Governance (ESG) in to their portfolios has almost doubled in five years.
This is according to a member survey carried out by New City Initiative (NCI), the boutique asset management think tank.
Five years ago just under half (47.6 percent) of boutiques had incorporated ESG in to their portfolios, now that figure stands at 90.5 percent.
Also 85.8 percent plan to further incorporate ESG factors, as well as 90.4 percent intend to sign up to UN Principles for Responsible Investment.
All respondents stated that ESG should be industry-led rather than pushed forward by regulators.
The main motivator at 52.6 percent for the adoption of ESG in portfolio decisions was risk management.
A majority (52.5 percent) stated they were “concerned” regarding the European Union’s (EU) regulatory proposal.
During 2018, the European Commission proposed asset managers’ sustainable activities and considerations should be included in their fiduciary duties.
Jamie Carter, chairman of NCI, said: “Our survey suggests ESG considerations are already firmly embedded in decision-making process and that a dramatic shift has happened in the past five years.
“It is obvious however that the sheer variety of approaches to and interpretation of ESG has led to increasing debate in the industry and confusion amongst potential customers. With the European Commission’s announcement that it will step in with regulation, we felt it was important to sound out the view of NCI’s members - specialist, independent, owner-managed boutiques.
“The results of the survey and analysis of recent developments, including European Securities and Markets Authority’s (ESMA’s) announcements in relation to ESG in December 2018, have informed a number of recommendations.
“Firstly, The EU’s reporting requirements need to ensure they do not contradict or duplicate existing obligations such as those outlined in the Task Force on Climate-related Financial Disclosures
(TCFD). This will do nothing but confuse clients. A better solution could be for the industry to self-regulate and adopt one of the most comprehensive standards like TCFD on a universal basis.
“Once the relevant Directives are in place, NCI encourages the ESMA to publish a regular summary of what it considers to be best practice under the principles-based approach, to encourage greater harmonisation and higher standards across the industry.
“ESMA confirmed it will not adopt a prescriptive approach to ESG regulation which is a welcome announcement. However, NCI membership is unanimously opposed to ESG becoming an issue driven by regulators, instead preferring industry-led initiatives to support the development of sector standards.”
This news follows the revelation that the vast majority of advisers believe investors are being mis-sold ESG products.
An overwhelming 97 percent of advisers who were surveyed are either ‘very concerned’ or ‘fairly concerned’ regarding mis-selling allegations, in which a client becomes distressed they have invested money in an ESG fund which holds unethical companies.
This report was put together by Cicero, a market research agency and EdenTree Investment Management.
Founded in 2010, NCI is comprised of over 50 leading independent asset management firms from the UK and Europe managing approximately £500 billion and employing several thousand people altogether. Some of the firms included are Stonehage Fleming, Neptune Investment Management and Polar Capital.
