Five Factors Driving ESG Integration

Environmental Social and Governance (ESG) investing is already a major trend, with around one in ten investors currently holding ESG assets. However, over the next few years we can expect to see ESG investing move from being a niche field to one that’s absolutely central to the investment community. According to one forecast, ESG assets under management (AUM) will reach $53 trillion in the next four years – a sum that’s equivalent to one third of all AUM globally.

What’s driving this trend? As detailed in our new eBook, Meeting the ESG imperative (ebook landing page), there are five key factors:

  1. Fee pressure: The rise of low-cost passive funds, Increased scrutiny from regulators and investors around value for money, performance-based fee models, and increased competition are combining to drive down fees. Specialist investment approaches like ESG allow asset managers to provide the sort of differentiated products that justify higher fees.
  2. Asset owner mandates: More and more, individuals and institutional investors alike are demanding funds linked to sustainable business practices and social justice. Where the market does, investment managers must follow.
  3. Increased regulatory pressure: Higher levels of rigor, standardization and oversight is being brought to bear to ensure that ESG investing delivers as advertised. The EU’s Sustainable Finance Disclosure Regulation (SFDR), for instance, offers a foretaste of the ESG reporting requirements that will likely fall on all firms as the area of sustainable investing matures.
  4. Better performance: ESG based funds deliver strong returns. Indeed, In 2020, 81% of a globally representative selection of sustainable indexes outperformed their parent benchmarks.
  5. Reduced reputational risk: With ESG there is a clear risk of accusations of “greenwashing” or miss-selling associated with half-hearted integration. When integrating ESG, there must be a strong focus on the quality of the data used, and on ensuring there is complete transparency of the data so investment managers can report on the full ESG implications of their products.

Elisabeth Seep, ESG Product Manager, RIMES, adds: “ESG integration is no longer a nice-to-have.  Any firm serious about long-term success needs to be addressing ESG now and ensuring that they have in place robust data management and reporting capabilities required to provide clients and regulators transparency within portfolios and products regarding E, S, G and climate factors.

At RIMES, we believe the best approach to building a transparent, detailed and effective ESG data platform is to embrace Lean Data Management principles. This is a flexible, cloud-based, service-led approach where investment managers work with strategic data partners that combine best-in-class technologies and data expertise with the cost points that come with economies of scale.”

To download a copy of RIMES’ new ESG eBook, click here.

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