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ESG: The role of asset managers


ESG: The role of asset managers

More and more people want to invest their money in responsible companies. How do asset managers react to this trend? How do they prepare for future changes? And what does this mean for the companies?

ESG: The role of asset managers

ESG issues influence investment decisions

The EU considers asset managers to be crucial for future investments towards sustainable investments. Initiatives such as the EU taxonomy are aimed at making asset managers aware of their responsibilities in the global fight against climate change and in dealing with fundamental environmental and social issues.

This is just one of many reasons why asset managers are increasingly reflecting on ESG issues in their existing investment decisions. To do so, they must identify sustainability risks and integrate them into decision-making and reporting processes. As part of this process, numerous large asset managers are active in international initiatives. With the PRIs (Principles for Responsible Investment), they commit themselves to disclose information on selected ESG aspects of their investments and investment decisions. The goal: maximum transparency for the asset owners who entrust their money to the asset managers. Only this way asset owners can make a well-founded decision when choosing ESG-compliant investments.

The complexity of sustainability is increasing

Companies that respond early to the growing demand for ESG investments and drive the development of sustainable products and services can tap into new customer segments and additional earnings potential. This requires the analysis of numerous criteria that play a role in assessing sustainability. This is where rating agencies specializing in ESG or certain sub-areas are used. For example, they take a close look at the CO2 emissions of countries or companies. This data is made available to the asset managers.

Asset managers launching sustainability or ESG funds often use several ratings simultaneously to get a holistic picture of the extent of a company’s sustainability. The result is an extensive range of ESG funds and ESG indices with different focuses. However, this in turn creates new problems, as many investors are at risk of losing sight of the bigger picture due to the increasing number of ESG financial products.

Good ESG reporting is rewarded

The growing interest in sustainable investments is leading to increased interest in ESG reporting by all companies. Asset managers increasingly want to support companies that set standards in the area of ESG with their investments – while companies that still ignore the topic are increasingly being punished and are being sorted out by numerous investors from the outset.

This is because asset managers look at very specific indicators to measure the impact of an investment portfolio on ESG criteria – and use almost exclusively public sources such as a company’s non-financial reporting to do so. So anyone who does good in the area of ESG but doesn’t talk about it is automatically penalized.

ESG as mainstream?

Social responsibility for ESG issues no longer lies exclusively with individual NGOs or politicians. Asset Owner are also increasingly paying attention to sustainability. Asset managers are reacting – and increasingly forcing companies to provide detailed information about their ESG performance. Although ESG investments are still the exception rather than the rule, their importance is growing rapidly. Companies that continue to ignore this development risk losing important sources of capital.

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