Investor interest is the biggest barrier to greater adoption of environmental, social and governance (ESG) factors in the investment process by asset managers, according to a new survey

Almost two-thirds of asset managers, owners and pension funds surveyed at a Responsible Investment Forum hosted by asset manager First State Investments said stronger mandates and a greater emphasis from asset owners were key to pushing greater consideration of ESG factors by managers. Just 14 per cent thought more regulation would help.

“People felt regulation could only do so much. What will really encourage greater adoption of responsible investment processes by asset managers is their customers demanding it,” First State global head of responsible investment Will Oulton said.

“The findings reflect a frustration that asset owners have not really done that and are still yet to do that with relatively few exceptions,” he added. “Pension funds are key.”

Among the major issues debated at the forum in March, according to Oulton, was the role of investor engagement with companies. According to the survey, only a minority had absolute restrictions on investing in companies with poor ESG ratings, with 88 per cent saying they would invest in a company with a poor but improving ESG ratings.

“There’s a great deal of interest in engagement as part of a stewardship-driven agenda, but there are still questions about what makes effective engagement and how you measure that,” said Oulton.

Factors that would encourage longer-term investing, meanwhile, included a move by fund managers towards annual performance reporting from quarterly reports (cited by 44% of respondents), and ending corporate earnings quarterly reporting (named by 36%). Distribution of loyalty dividends and votes for long-term shareholders (39%), new financial products meeting a “fit-for-social-purpose” test (20%) and an addition to the United Nations-supported Principles for Responsible Investment to encourage long-term investment (13%) also found support.

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