The Markets August 17, 2015

Majority of Investment Professionals Factor ESG Into Decisions

Board accountability, human capital and executive compensation emerge as key issues in new CFA Institute survey.
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Almost three-quarters of investment professionals worldwide (73%) take environmental, social and corporate governance (ESG) issues into consideration in the investment process, according to the CFA Institute ESG Survey, a survey of institute members created by CFA Institute and the Investor Responsibility Research Center Institute (IRRC Institute). In addition, 64% of survey respondents consider governance issues, 50% consider environmental issues, and 49% consider social issues in investment decisions. Only 27% do not consider ESG issues.

“Overall, the survey creates a robust data baseline for investors, companies, and ESG data providers,” says Jon Lukomnik, IRRC Institute executive director. “Most importantly, this survey digs deeper than the simple question of, ‘Is ESG important?’ The nuances are important and provide much needed insight on how investors and analysts actually use ESG data and what data is most relevant. For example, the survey findings not only tell us that investors generally want external assurance about ESG data, but also about the preferred level of assurance, and about how much investors are willing to pay for ESG assurances.”

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According to “ESG Issues in Investing: Investors Debunk the Myths,” 63% of survey respondents said they consider ESG in the investment decision-making process to help manage investment risks, 44% say their clients/investors demand it and 38% said ESG performance is a proxy for management quality.

Survey respondents ranked board accountability, human capital and executive compensation as the issues most important to investment analysis and decision-making.

NEXT: More than half factor in ESG into investment analysis

Fifty-seven percent of respondents integrate ESG into the whole investment analysis and decision-making process, while 38% use best-in-class positive alignment; 36% use ESG analysis for exclusionary screening. 

Sixty-one percent of survey respondents agreed that public companies should be required to report at least annually on a cohesive set of sustainability indicators in accordance with the most up-to-date reporting framework. In addition, 69% of these respondents say ESG disclosures should be subject to independent verification.

Of those respondents who believe disclosures should undergo a verification process, 44% believe that verification at a high level of assurance, similar to an audit, is necessary. Another 46% believe limited verification, or a lower level of assurance, is necessary. When this group was asked how much should be spent on independent verification, responses varied from 10% to 100% of the cost of an audit of financial statements.

A high proportion of CFA Institute members in the Asia-Pacific region considered ESG issues (78%), followed closely by members in the Europe, Middle East, and Africa (EMEA) region (74%). Respondents in the Americas region were the least likely to use ESG information in their decisionmaking process, but even there, a solid majority (59%) do use ESG factors.

Every investment analyst should be able to identify and properly evaluate investment risks, and ESG issues are a part of this, observes Paul Smith, president and chief executive of CFA Institute. “Our exam curriculum emphasizes risk management, and our members are increasingly interested in continuing education materials on ESG. This survey demonstrates how serious investment professionals are considering these issues and how practice and methodology are evolving.”

Some 1,325 members of CFA Institute who are portfolio managers or research analysts were surveyed online from May 26 to June 5. By regional breakdown: 68% from Americas, 21% EMEA, 11% APAC. By primary asset base: 41% primarily deal with institutional clients, 31% private clients, 16% both, and 12% not applicable.

Data & Research August 17, 2015

Many Workers Wish They Had Started Saving Earlier

The majority are open to automatic enrollment and escalation.
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Nine in 10 workers have at least some regret about when they started saving for retirement, American Century found in a survey of 2,031 defined contribution plan participants. Seventy-five percent said they could have saved at a little more in the past. More than half point to the first five years of working as they time when they could have saved more than they did. A majority said not saving enough for retirement was one of the biggest mistakes of their lives.

Despite this regret, half of those aged 55 to 65 and 60% of those 25 to 54 admit they are still saving less than they should.

“Retirement plan participants have a great deal of regret about their past saving behavior” says Diane Gallagher, vice president of defined contribution investment only (DCIO) practice management at American Century. “Plan participants aren’t expecting to be rich. They are really aspiring for independence, rather than affluence. Also, they realize it’s important to save through their defined contribution plan, but they look to their employers to help them establish positive saving and investing patterns.”

In fact, given a choice between two job offers—one with a retirement plan and one with a higher salary—pre-retirees are five times more likely to choose the retirement plan offer, demonstrating how much workers, especially older workers, value employer-sponsored retirement plans.

NEXT: Expectations of their employers

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Eighty percent of those surveyed said they would have more savings had their employer given them a “slight nudge” to save more. Seventy percent favor automatic enrollment starting at 6%, and more than half support that initiative for all employees rather than just new hires. In addition, nearly 80% would accept automatic escalation.

As to using target-date funds as the default investment, 68% of pre-retirees and more than 70% of those aged 25 to 54 are in favor. Few participants believe their employers have done everything possible to help them prepare for retirement. Only 14% of all of those surveyed and 11% of pre-retirees say their employer did everything possible to encourage them to save.

More than 70% said retirement is one of their biggest financial goals, if not the No. 1 goal. However, 90% of pre-retirees and 70% of the younger group expect their standard of living to be roughly the same or worse than it is today.

“Even though plan sponsors don’t think participants want them to intervene, in reality, they are looking for a higher level of support,” Gallagher says. “Participants are willing to make adjustments to their current lifestyle, rather than suffer the consequences later. Although participants are technically able to drive, they are willing to be attentive passengers with their plan sponsors steering the car.”

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