- New York
Asset managers are putting the money where their clients’ mouths are, at least when it comes to environmental, social and governance (ESG) issues.
A recent CFA Institute survey of portfolio managers and research analysts showed that fully 73% of respondents say they are considering ESG issues in investment activities — both to manage risk and because their clients demand it.
But when it comes to writing about ESG investments, asset managers still have room to grow. New research we’ve undertaken here at Copylab reveals the asset management industry is keen to be heard but is still searching for its voice.
Our study analysed the ESG content produced by 23 leading asset managers. These include some of the largest industry players in the UK, Europe and the US, but also a selection of smaller firms.
Collectively, our sample represents over US$11 trillion in assets under management, and they include:
For each of the asset managers surveyed, we dug up and dissected the content of all relevant articles, blog posts and research papers featured on the firm’s website and produced from the beginning of the year to the end of October 2017. Additionally, we’ve analysed the content on each of these asset managers’ ESG webpage.
We have identified Seven Key Takeaways asset managers can immediately apply to their ESG content to make it stand out.
Along with ESG, responsible investing, socially responsible investing (SRI) and stewardship are all terms asset managers use to describe investment activity that considers non-financial factors relating to a company’s broader impact on society. They don’t all mean the same thing, but nonetheless asset managers often use them interchangeably.
It’s surprising that only 55% of sampled firms presented any sort of content on their ESG pages that didn’t focus exclusively on the asset manager, its products or its services.
Notably, this absence of content aimed at engaging clients wasn’t because it didn’t exist: 80% of the sampled firms have published relevant content elsewhere on their website this year, without making it available on their ESG page.
Our analysis classified each article in one of the following four categories:
An easy way to tell the difference between a Level 3 and a Level 4 article is to consider whether the article could just as plausibly have been published by a policy think tank. That is, while both a think tank and an investment house can research and discuss issues (Level 3), investment firms are typically far better equipped to imbue it with an investment angle too (Level 4).
To illustrate, this year Abrdn produced two different articles on the topic of impact investing. The first, published in May in PDF format, looks at embracing the UN’s Sustainable Development Goals in mainstream investment, and illustrates its arguments using a concrete stock example. The second, published in October, is entirely generic. So despite the similar titles, we classify these articles differently.
Here are a couple of our key findings:
1. Not enough articles link mainstream investments to ESG
On mainstream financial topics, asset managers do a good job at generating blog posts that strike a balance between educating the reader and offering investment insight.
Not so with ESG communications.
From a marketing standpoint, summarising information available on Wikipedia or making broad-stroke observations may help educate the reader, but it doesn’t speak to an asset manager’s expertise. Yet these accounted for roughly a quarter of the surveyed articles.
It’s perhaps encouraging that, while featuring them in the marketing mix, asset managers aren’t placing great focus on content about niche-investments.
According to the 2016 Global Sustainability Review, $22.9 trillion is invested in SRI strategies globally.
But a closer look at the data reveals that specialist products comprised a tiny part of this sum.
Therefore, to generate valuable ESG content, asset managers may well be better served tackling mainstream investment issues with an ESG spin, rather than the other way around.
Here are two examples: The first, by Newton Investment Management, looks at the Financial CHOICE Act, a laxer regulatory bill aimed at replacing the Dodd-Frank Act (which passed following the 2008 financial crash). This was a mainstream financial topic, discussed with an ESG twist focusing on governance issues.
The second, by Trillium Asset Management, looks at food waste, both as an environmental issue and as an investment risk. The report even suggests discussion questions investors can present to companies on food waste issues.
Most articles surveyed stick to industries and companies which would, conventionally, be fairly straightforward to classify as “good” or “bad” in terms of responsible investing. But this doesn’t reflect investors’ day-to-day reality:
Do good investment candidates always have a great ESG scorecard? No. Should asset managers write about treading the path between the responsibility to generate returns and ESG commitment? Absolutely.
While investors can’t single-handedly solve this dilemma, they are surely better placed than anyone else to discuss it.
2. There’s a huge content gap on ESG engagement
Asset managers are increasingly expected to use their shareholding power to nudge companies down a more sustainable path. Presently, very little of this activity is leveraged for marketing content.
Two in three of the asset managers surveyed periodically provide proxy voting updates, but these actions are often discussed either in broad terms or in a series of brief summaries. Most commonly, the information provided fails to offer a glimpse into the considerations that went into the judgment, or what made the vote significant to begin with.
This is a squandered opportunity. Whereas environmental and social risks play out over the longer-term, governance is directly linked to company performance. Clients know all too well that a sudden departure of a CEO or news of shady accounting practices can send share prices tumbling.
But the inner workings of corporate governance remain, by and large, hidden from public view.
Asset management firms are uniquely positioned to generate insight articles based on their engagement experience. For example, in March Hermes AM published an article on Cobalt mining in the Democratic Republic of the Congo.
Not only did the firm contextualise the issue (as highly relevant to smartphone and electric vehicle companies), it also discussed its engagement experience, including the observation that companies struggle to conduct due diligence on human rights at individual mines.
Royal London stood out in its approach to communicating governance issues by making them a content focal point. The company often discusses specific votes on its blog, explaining the contested issues.
The writers make it known they think that remuneration issues are a big deal, and that they’re prepared to call out companies when they think they’re not doing enough. Subtly, they use these brief blog posts to educate readers.
Whether it’s about environmental reporting or better management remuneration practices, governance-related content should always aim to draw attention to the actual issues investors face.
So where does this leave us?
While ESG is growing rapidly as a concern for investors, asset managers’ communications on the subject are often not keeping pace. Despite the successful examples above, no single investment house has yet to stake a claim at being the leading authority in the field.
Our research suggests that there are gaps in ESG content, ones that well-constructed, strategic communications could fill.
Our full ESG investment content review includes the full competitive assessment of asset managers’ ESG web pages and content, offering Seven Key Takeaways.