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Navigating the ESG Landscape: Opportunities and Challenges for Asset Managers

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Navigating the ESG Landscape: Opportunities and Challenges for Asset Managers

​The meteoric rise of ESG (environmental, social, governance) concerns has forced many asset managers into a precarious position. Caught between complex regulatory changes and a dynamic risk assessment landscape, asset managers everywhere are reassessing their approach to business.

What will it take to excel in today’s opportunity-rich ESG landscape? From navigating data quality challenges to the identification of climate-related risks, there’s plenty to consider as the value of ESG-oriented assets under management looks set to rise to $33.9 trillion by 2026.

Targeting Industry-Relevant ESG Concerns

The ‘greenwashing’ label represents more than just reputational damage – asset managers must be savvy to the recent regulatory clampdowns on greenwashing to avoid landing in hot legal water.

In the US, the Federal Trade Commission is reviewing its ‘Green Guide’ for the first time in over a decade, the European Commission published its anticipated ‘Green Claims Directive,’ and the UK are adopting global sustainability rules to place more pressure on firms to disclose their environmental impact.

Why is this a big deal for asset managers? Because it places a profound administrative burden on their shoulders. Misleading product presentation is a major target for regulators, and the burgeoning emphasis on transparency will require renewed diligence from those inside the space.

Naturally, this will require managers to develop a comprehensive understanding of their assets’ ESG-related attributes to mitigate their compliance risk. This is tricky, given the wide range of data sets to choose from (and the various stakeholders they need to juggle at the same time).

ESG concerns affect every organisation differently, and there’s no uniform approach to fall back on when it comes to managing the implications of your investments. A good place to begin building a comprehensive ESG asset management strategy is to focus on areas that are relevant areas for your organisation and the stakeholders you serve.

For example, an auto manufacturer might have more of a responsibility to focus on environmental issues than a SaaS (software as a service) provider, who, alternatively, may have more of a stake in the learning and development of their workforce.

Firms need to ask themselves where in the ESG landscape they can make the biggest impact through their output.

ESG Investment and the Enhanced Value Proposition

ESG asset management isn’t purely an exercise in compliance navigation. ESG-related investments represent an incredible opportunity to create meaningful, wide-reaching value for all those involved.

The rise of the B Corp movement is a prime signifier of this potential value creation. The B Corp accreditation (granted by B Lab) is awarded to businesses that demonstrate ‘high standards of verified performance, accountability, and transparency’ regarding their environmental and social impact. The assessment process is rigorous, and for good reason, the accreditation is typically perceived as the gold standard of corporate responsibility.

This is, in many ways, reflective of a broader corporate paradigm shift. Investors are increasingly looking to partner with organisations that present a strong ESG-related performance, and, as highlighted in a study from McKinsey and Company, consumers are increasingly backing products connected with ESG claims via their purchasing behaviour.

Moreover, ESG-focused investments (when managed efficiently and vigilantly) tend to represent less risk, as organisations with strong ESG practices are generally less susceptible to regulatory infringements.

Data Quality

Data analysis is one of the more prevailing challenges facing the ESG space in the current climate, primarily a result of reliability (or lack thereof). Plus, many data sets are incomplete, and the methodologies used to gather them differ drastically between sources. Asset managers, therefore, are often required to sample and interpret data from competing sources.

As ESG data vendors mature alongside an evolving regulatory backdrop, the key to evaluating and managing data sets lies in adaptability. Asset managers will need to lean on the adaptive approach to consistently revisit the ESG data lifecycle.

Hear from the Experts

To find out more about the latest trends, challenges, and opportunities in the ESG investment space, join Broadgate Social on September 19th at our latest in-person networking initiative and panel discussion. If you’d like to join the conversation, build connections, and hear from industry experts, RSVP here and save your space today.