Many institutional investors are seeking improved environmental, social and governance (ESG) transparency and data standardisation in order to drive more meaningful adoption, a report has found.
Two fifths of global investors identified a lack of acceptable policy frameworks as the main challenge to introducing ESG, while over a third believe there is a lack of quality data to support decisions, according to the study sponsored by Franklin Templeton.
Julie Moret, head of ESG at Franklin Templeton, said: “The study underscores the recognition that robust, measurable and comparable data disclosures and common standards are pivotal to support the deeper application of ESG.”
For over two thirds of investors, reducing risk was identified as the main benefit of incorporating ESG, while 60% said it improved financial returns.
However, 30% of respondents, including some of the survey’s more sophisticated investors, believe that ESG integration may negatively impact the profitability of portfolios and deliver lower returns.
The survey also found that social issues present investors with a dilemma due to lack of disclosure and high-quality data.
Although diversity and human rights were seen as the most important social factors for 60% of sophisticated investors, overall social issues were considered less often than environmental or governance issues.
Less than 14% of north American investors consider any other social factors aside from diversity. According to Franklin Templeton, this disconnect implies there is a lack of reliable metrics or viable products that adequately address these issues.
Janine Guillot, chief executive of The Sustainability Accounting Standards Board (SASB), said: “Providing the necessary transparency on how ESG practices are being applied across portfolios, and how rigorously they are embedded in investment decisions, is becoming more important than ever.”
She added: “A collective effort across all market participants - asset owners, asset managers, data providers, standards-setters and policy makers - is needed to ensure investors have the tools and capabilities necessary to achieve their financial goals.”
SASB is a non-profit organisation that sets financial reporting standards with a focus on sustainability.
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