Investment managers continue to improve ESG risk management, but integration remains mixed across asset classes, XPS survey finds
XPS Group’s fourth annual Investment Fund ESG Rating Review assesses how XPS Group’s clients’ investments (including 43 investment managers, covering 184 funds) are progressing their ESG considerations and climate risk approach. It found that the number of managers receiving a ‘Green’ ESG rating has increased to 40%, versus 36% in 2023.
Despite the recent withdrawal of a number of investment managers from industry initiatives such as Climate Action 100+ and the ongoing debate around the industry’s commitment to ESG, the results of the annual survey suggest that the majority of fund managers now robustly embed ESG factors into their decision-making. Nevertheless, laggards do remain. 26% of all managers could not provide any examples of taking into account ESG risks, which is concerning, the group says.
In the context of COP29, the group said, consideration of ESG and climate risks remains critical to good investment management. It said it has seen progress on climate change in most asset classes, and many managers are now embedding net zero targets into their existing funds and demonstrating better management of climate risks.
In private markets in particular, there has been progress from a low base, with an improvement in the ability to report on carbon emissions data and the first ‘Green’ ratings on climate change seen.
With stewardship continuing to be a key area of discussion in the market, the research also showed that passive equity funds saw a notable improvement, with 45% achieving a ‘Green’ sub-rating, compared to 10% the year before. Private market funds lagged, with 33% ‘Red’ on Stewardship, compared to 27% last year, and notably poor responses on engagement by private debt managers.
Alex Quant, Head of ESG Research at XPS Group, said: “This year we saw continued divergence between managers, across ESG and climate risk management and on stewardship, with some doing well but laggards remaining in all areas.
“COP29 will either lead to more national commitments and support for the climate transition, or the impact of climate change on global warming will get worse and worse – either way this creates significant risks for investors not thinking about transition or physical risks.
“Investors must ensure their managers are effectively managing these key sources of risk.”
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