Asset managers offering environmental, social and governance (ESG) investment strategies will have to share more information about their investment processes if they want their strategies to stand out in the eVestment database. The database has expanded its ESG data collection to include firm-wide information in addition to product-level data.
With the new data, investors and consultants using the database can find out, for example, if an asset manager has a firm-wide ESG policy and how many individuals’ day-to-day work is directly tied to ESG and responsible investing initiatives.
“It seems that [consultants] are interested in learning how ESG is implemented throughout an asset manager but also… specifically for a strategy. That’s why we wanted to create this new section under firm-level where a manager is able to describe their overall ESG approach more specifically,” says Maria Simon, eVestment’s client segment marketing leader.
As interest for ESG strategies grows, so does the need for information on ESG investment practices among institutional investors and consultants.
“What they were offering before was what I would call version 1.0,” says Scott Perry, partner at NEPC. The previous questions, he says, were getting “at the tip of the iceberg in terms of what managers were doing as it relates to ESG.”
Nonetheless, consultants see value in both pieces of information – what a firm is doing with regards to ESG as well as how ESG factors play out within an investment strategy.
“The big questions that we emphasized with eVestment, and are excited to have included, are why are they integrating ESG… where in the investment process does the ESG integration come in, who owns it, whether that is part of the investment team or whether there is a separate ESG team that is responsible for it, what ESG data they are using, whether it is internal or external or a mix of both, and then finally what they are doing in terms of active management, and by that I mean proxy voting [and] engagement with management on some of these issues,” Perry says.
Besides adding questions aimed at finding out firm-wide approaches to ESG, the new questionnaire also encompasses a greater number of strategies.
“Before were very much focused on positive and negative screening, but as more asset managers are getting into ESG integration we are able to take into consideration different types of ESG approaches. So we are definitely looking forward to increasing that universe in our database going forward,” eVestments’s Simon says.
The new questions will allow consultants to streamline their ESG due diligence process. With the additional information, consultants and institutional investors will be able to do additional analysis before sending out requests for information (RFIs) to asset managers.
“What we found is that a lot of consultants do ask more in-depth questions and they have those as a part of their standard RFIs nowadays, but I think having it on the eVestment platform will definitely give them a better opportunity to dig deeper,” Simon says.
The more inclusive questionnaire has the potential to increase the number of companies reporting as well as the number of ESG strategies on the database. In the past, the questionnaire was binary. In other words, strategies reported as ESG strategies could not be reported under any other asset class.
Take a U.S. large-cap core strategy manager, for example. Previously, managers were not able to report ESG integration associated with that strategy if they wanted it to show up under the large-cap core designation.
“Now [managers] can submit the data on their core competency of a U.S. large-cap core with an ESG integration,” Simon says. “That is something that wasn’t possible before.”
The demand for information on ESG managers and products has been among the greatest compared to other categories of products. ESG screening activity on eVestment has increased by 150% over the past 18 months.
Yet, the growing interest in ESG strategies has not translated into significant inflows.
“There is definitely a lot of discussion [around ESG] but… what we are seeing on our platform is that money has not yet found its way [into ESG strategies] that much.”
In fact, ESG strategies reported to eVestment have experienced nine consecutive quarters of outflows as of Q2 2016, when they had $117.4 billion in assets under management.
The new version of ESG data will allow consultants and investors to sharpen their decision making process, which could lead more managers to report on ESG integration and fuel assets into these strategies.
“[The new data set] will bring a lot more awareness around what investment managers are doing and it will allow managers, or almost force managers, to better articulate what they are doing in regard to ESG and I think that will influence capital allocation decisions,” Perry says.