According to a report from Clearwater Analytics, which polled 190 institutional investors representing $12 trillion in assets, institutional investors are still failing to implement stringent environmental, social, and governance (ESG) policies.
According to the report, when it comes to responsible investment, 45 percent of asset managers, pension funds, and insurers still lack clear strategies.
A third of respondents said there was a lack of available and trustworthy data needed to evaluate investments using an ESG lens.
The majority of participants complained about data issues with private equity assets, with four out of five claiming that ESG market data for private investment was insufficient. When it came to private debt, up to 79 percent said they were in the same boat.
Only 16.5 percent of those polled said the lack of a consistent policy was due to concerns about 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 ," Gayatri Raman, president of Clearwater Analytics Europe and Asia, said.
In other areas, less than half of respondents said that a lack of data was a problem for public equities.
Participants were also concerned about data collection, with 40% stating that they used spreadsheets for climate reporting, despite the fact that 50% were 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," according to Raman.
Fund managers are growing concerned about the use of "simplistic metrics" to account for environmental risks, claiming that this could lead to asset allocation errors, investor confusion, and ineffective reporting procedures.
Simultaneously, the industry has expressed concern about the EU's sustainability disclosure framework's complexity, with one key issue being that the Sustainable Finance Disclosures Regulation has not yet been fully implemented, and thus lacks the regulatory technical standards (RTS) or level 2 requirements required to complete the reporting.
By fLEXI tEAM