Many ESG proposals from asset managers fail on social aspects, says investor review

Some asset managers pitching for ESG mandates have been accused of compromising the credibility of the industry by failing to consider social issues, in a study from three UK investors. 

Friends Provident Foundation, the Joffe Trust and the Blagrave Trust – all charitable endowments with combined assets of £53.5m – launched the ‘ESG Olympics’ last year, in which asset managers competed to submit the best pitch for a new ESG fund. 59 proposals were submitted, from investment managers with combined assets of £15trn.

The trio has now released a ‘state of the sector’ report based on the pitches, highlighting “serious gaps” in ESG standards within the market. 

It points to a lack of attention paid to the social side of ESG, claiming that many ESG funds invest in sectors which have high social risk and have been in the news for poor working conditions. 

It said that some pitches did not mention social issues at all, and many also failed to include social risk in their exclusions.

Other issues raised include a general lack of in-house ESG expertise and poor voting records on ESG-related resolutions. Active engagement with companies was uncommon and many submitters relied too heavily on collective engagement initiatives.

Colin Baines, Investment Engagement Manager at Friends Provident Foundation and author of the report, said that, while ESG had “enormous potential to effect real positive change… there are also risks to the credibility of ESG as a concept if the approach taken is too piecemeal or tokenistic.”

UBS, EQ Investors, Tribe, Eden Tree and Cazenove Capital were shortlisted for the ESG Olympics, and the new report coincides with the winner, Cazenove, launching its Sustainable Growth Fund. Joffe Trust and the Blagrave Trust will invest their entire mandates in the fund, with Friends Provident Foundation contributing £10m – bringing the total mandate to £33.5m.

The core of the fund will be invested in the Schroders Global Sustainable Growth Strategy, with satellite positions in specialist thematic and impact managers. Cazenove claims that the fund will have a 63% reduction in carbon emissions versus the global equity index, and four times the social impact. The fund will also offset equity emissions and aims to plant 20,000 trees a year.