Meeting the Evolving ESG Demands of Institutional Investors
Despite a challenging market environment in 2022, sustainable and responsible investing continues to be a growth driver for many firms. While ESG-focused retail fund flows have slowed, institutional asset owners are charging forward, with 81% reporting increased interest in sustainable investing over the past two years. Consequently, ESG-related assets under management are expected to swell to $33.9 trillion by 2026. As the market matures, the needs and expectations of asset owners are outpacing the ESG offerings of many asset managers. We believe the disconnect between asset owner demand and asset manager supply presents enormous opportunities for our clients.
We recently explored this dynamic in a webcast where we asked institutional asset owners and advisors to provide perspective and commentary on these broader industry trends. For example, a recent survey conducted by Morgan Stanley's Institute for Sustainable Investing revealed that 88% of asset owners want managers to provide ESG reporting and disclosures alongside traditional financial metrics, a practice only 39% of asset managers embrace. A panelist on the recent webcast, Aaron Brachman, Managing Director at the Washington Wealth Group said that "there is a huge disconnect between what our institutional and ultra-high-net-worth clients are looking for and the data that is being provided by managers. And we see almost no ESG data whatsoever in the private equity or hedge fund space." The same survey illustrated other disconnects, with asset owners struggling to find managers with dedicated ESG teams, firm-level sustainable investing policies, and Principles for Responsible Investing (PRI) signatories. Webcast panelist Pooja Eppanapally from the Women of the World Endowment highlighted the opportunity for asset managers: "The current products that are out there are only scratching the surface in terms of the impact that we would like to see. We've been struggling to find strong opportunities outside of venture capital that fit our mandate."
Additionally, asset owners are seeking more sustainability-focused thematic strategies than the asset management community has yet proffered. Water solutions, climate change, education, and health and nutrition are just a few of the areas where endowments and foundations would like to align the missions of their organizations with their investment strategies. "As a foundation, we have a mission, and we would like to be able to take our investment dollars to help further that mission," said panelist Nancie Lynch, Executive Director of the Richard E. & Nancy P. Marriott Foundation. “Many of foundations that I've been in contact with are trying to get into the impact investing space.”
Sustainable and responsible investing appears to be one of the few areas of the increasingly commoditized investment industry that is not fully saturated. At ACA, we're committed to helping our clients capture such opportunities in conjunction with meeting compliance and regulatory obligations. So, when only 20% of institutional investors reported having access to adequate environmental and social impact data, we noticed. In 2022, we acquired data and analytics provider, Ethos ESG, who has joined ACA's growing ESG Advisory practice. The combined offering creates a one-stop shop for managers to find all the resources necessary to meet institutional investors' growing and evolving ESG expectations. To learn more about ACA's ESG Advisory & Data Analytics practice, please reach out to your ACA consultant or contact us.
How we help
The ESG landscape is evolving at a rapid pace and requires additional resources to meet investor and regulatory expectations.
Our dedicated ESG advisory and analytics practice helps firms of all sizes develop and monitor ESG programs to mitigate risk, make informed choices, grow profitably and sustainably, and combat greenwashing in the process.
ACA's ESG data & analytics solution, Ethos ESG, ACA’s new ESG platform will help our clients understand and design metrics programs according to client/investor preferences, track those metrics and report on progress over time, and advise staff on compliance around evolving ESG regulations.
To learn more about ACA's ESG Advisory & Data Analytics practice, please contact us.
Watch our webcast on demand
To learn more, watch our on demand webcast: Meeting the Evolving ESG Demands of Institutional Investors. Hear from an endowment portfolio manager, a foundation investment advisor, and ACA’s head of ESG Data & Analytics as they discuss practical insights, strategies, and examples of how investment managers and asset owners are using ESG data to grow and enhance their services for environmentally and socially conscious investors.