Institutional investors are still failing to implement stringent environmental, social, and governance (ESG) policies, according to a report from Clearwater Analytics, which polled 190 institutional investors representing $12 trillion in assets.
According to the report, 45% of asset managers, pension funds and insurers still lack clear strategies when it comes to responsible investment.
It also found a third of respondents citing there was a lack of available and credible data needed to evaluate investments through an ESG lens.
Participants primarily flagged data issues with private equity assets, with four fifths claiming ESG market data for private investment was inadequate. Up to 79% reported the same about private debt.
Just 16.5% of respondents stated absence of a coherent policy was the result of concerns around lower returns.
“The prevailing view of the last few years has been that ESG is a fundamental pillar of modern investing. This study shows that this isn’t strictly speaking true – and a major barrier is the lack of credible data, particularly in private markets,” said Gayatri Raman, president of Europe and Asia at Clearwater Analytics.
Elsewhere, less than 50% of respondents said lack of available data was in issue for public equities.
Participants also expressed concern around compiling data, with 40% stating they used spreadsheets for climate reporting, despite 50% being required to report quarterly.
“Before anyone can incorporate ESG factors into their investing strategies, data needs to be highly available, high quality, and easy to track. Only then will investors be able to fully integrate these initiatives into their investment process,” said Raman.
Fund managers have become increasingly concerned about the emergence of “simplistic metrics” to account for environmental risks, citing this could potentially lead to errors in asset allocation, as well as investor confusion and ineffective reporting procedures.
At the same time, the industry has expressed unease about the complexity if the EU’s sustainability disclosure framework, a key issue being that Sustainable Finance Disclosures Regulation has not been fully implemented yet, and therefore lacks the regulatory technical standards (RTS) or level 2 requirements needed to complete the reporting.
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