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Credit investors engage just 25% of holdings on ESG, despite integration claims, Redington finds

Global survey of asset managers by investment consultant also finds lack of ‘tangible link’ between ESG analysis and investment decisions

Credit managers are, on average, engaging with just 25% of their portfolios on ESG, according to the second annual Sustainable Investment Survey by UK investment consultant Redington, released today.

Based on its polling of 112 global asset managers, Redington found that on average credit investors were “not undertaking any engagement across 75% of their overall portfolios”.

Asset managers surveyed by Redington operate across a variety of asset classes, including equities, credit, private debt, private equity and real assets. Most were based in the UK (46%) and US (39%).

Nick Samuels, Head of Manager Research at Redington, described the finding as “particularly surprising”. “Credit investors are often uniquely equipped to be able to shift attitudes and practices,” he said. “We would like to see them make full use of this influence and engage with borrowers to drive change on material ESG risks and opportunities, particularly at initial issuance.”

As to why credit investors were not engaging, Alessia Lenders, a manager in Redington’s research team, told RI that there were several potential reasons, including the highly diversified nature of credit funds, which are made up of large numbers of issuers, making engagement resource intensive. 

She said that there “also appears to be less pressure from the asset owners [for managers to engage]” – although she added that this is changing. “There is increasing recognition of the influence that credit managers can have on companies, especially when most of those companies are recurrent issuers,” Lenders said.

The survey also found that when it comes to engagement on equities, just 15% of holdings are on average engaged ‘deeply’ – defined as “at least three back-and-forth dialogues between a manager and company”.

Samuels contrasted this with the 60% of real assets being subjected to such engagement: “We would expect a higher proportion of deep engagements across equity strategies, too – especially given the asset managers’ level of influence as shareholders.” 

Redington also highlighted the gap between asset managers’ ESG analysis and investment decisions: More than 90% of asset managers claimed to integrate ESG into their fundamental research, yet “only 74% and 61% of asset managers could evidence ESG considerations influencing respective buy or sell decisions over the past six months”, the survey found.

“Given that almost all asset managers, across most asset classes, indicate that ESG factors influence their investment decisions at least sometimes, we would like to see these words being backed up more substantially by investment actions,” said Paul Lee, Redington’s Head of Stewardship & Sustainable Investment Strategy. 

“What’s really needed to further the sustainability agenda within the asset management community is a tangible link between ESG analysis and investment decisions,” he added.

The survey did, however, identify a number of positive trends; for instance, the number of firms linking remuneration to the integration of sustainability risks was found to have increased by a fifth since last year, now covering 70% of firms.