What ‘good’ might look like for asset managers in 2024 …

… in respect of sustainable investment & ESG?

(Disclosure of interest: I work for www.sri-connect.com which is a research network for everyone with ‘current professional exposure to sustainable investment’ including investors, research providers and companies … and those that support these.? The network (which is free to join via here ) has >6,000 members and promotes high-quality sustainable investment research and efficient communications between companies and investors on sustainability.? My views are – therefore - focused on these aspects of the industry / value chain.)

In earlier posts, I asked:

• What might ‘good’ look like for sustainable investment & ESG in general in 2024?

In this post, I extend my analysis to what ‘good’ might look like for asset managers, in particular, in 2024.

What ‘good’ might look like for asset managers

IMHO, it will be ‘good’ if … by the end of 2024:

1] A leading cohort of asset managers can clearly articulate (to both clients and investee companies) whether / how they integrate sustainability factors into their INVESTMENT DECISION-MAKING

• Notably, the approach of fundamental active investors will be entirely different from that of passive investors which will – in turn – be different from that of quants-investors
• We need – as an industry – to get beyond the nonsense of fundamental active investors pretending that the granular comparability of ESG datapoints between companies helps them make investment decisions
• Equally, we need to get beyond the idea that passive or quants investors use deep detail on the interaction between sustainability trends and corporate exposure to these trends
• It would be ‘good’ if we could arrive – through the value chain – at a much clearer understanding of what sort of sustainability information is required by active investors (probably anything that enables them to evaluate the impact of secular sustainability trends on market size, companies’ market share, R&D opportunities, costs etc.) and what sort of sustainability information is required by passive investors (probably a few unambiguous, universally-applicable datapoints) and what sort of sustainability information is required by quants investors (frankly, I have no idea)

2] A leading cohort of asset managers can clearly articulate (to both clients and investee companies) whether and how they integrate sustainability factors into their STEWARDSHIP & ENGAGEMENT activities.

• As part of this, these asset managers could usefully set out the sustainability issues that they prioritise for ownership-related activity
• It may seem surprising that this isn’t already happening on a widespread basis.
• However, we spend a lot of time looking for this sort of information from investors and find that we typically have to derive this from client-facing publications by asset managers rather than from material that is directed at the investee companies that they hope to engage.
• The lack of ‘two-pagers’ on “ABC Capital’s sustainable stewardship priorities” seems like a missed opportunity

3] A leading cohort of asset managers can clearly articulate (privately) what RESEARCH (not data, ratings or analytics services) they undertake (or buy-in) and are able to describe the budget that they assign to this

Ideally, the effective allocation of sustainable investment research budget would be a competitive differentiator between asset managers.? Realistically, however, I think we should leave this for 2025 and/or my dreams.

Progress made recently

Recent work by SRI-Connect in these respects has included:

• How investors integrate sustainability factors into intrinsic valuation for WBCSD
• The gathering and distribution of ‘Responsible Investment Activity’ reports by institutional investors that help clients, research providers and listed companies identify the focus of individual activities
• The development of ‘profile-focused reports’ that report on the interest of target asset managers in specific sustainability issues (e.g. climate change and biodiversity) or on the specific sustainable investment practices that they deploy (e.g. on integrated analysis and valuation)
• Show me the money – a guide (that needs updating) on which asset managers are really putting their money where their mouths are on sustainability

Next up …

In upcoming posts, I will extend this discussion to:

• What ‘good’ might look like for investment research providers in 2024 …
• What ‘good’ might look like for listed companies in 2024 …

For discussion …

• Would the three ‘good’ outcomes that I have selected make it onto your list of hopes and expectations for sustainable investors in 2024?
• If so, in which order would you prioritise them?*
• Have you seen any useful articulation of how different types of sustainability data are required for different investment strategies?

Discuss below or via here:

• Integration: SustInvStrat: Fundamental active integration: Do investors articulate effectively how they apply sustainability factors to investment decision making?
• Engagement: SustInvStrat: Engagement: (How) could investors better articulate their stewardship and engagement priorities?

(* While I agree that greater clarity around Stewardship & Engagement activities is still needed, I’m feeling optimistic that this might be the year that the ambition, capacity and tools might finally align to make capital allocation based on sustainability a realistic prospect.? Do you share my optimism?)