Majority of Investment Professionals Factor ESG Into Decisions

Board accountability, human capital and executive compensation emerge as key issues in new CFA Institute survey.

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.”

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.