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ESG is a hot topic. But does investor and consultant screening activity reflect that?
10 February 2020
One way eVestment clients sift through our database of over 25,000 strategies is by using our screening tool, drilling down to their preferred set of investment options by establishing a set of criteria. Investors and consultants increasingly chose strategies to review based on ESG criteria, accounting for 2.1% of screens for the year ending Nov 2019 from 0.8% LTM through Dec 2018.

Environmental, social and governance (ESG) investing has seemingly been at the forefront of both investors’ and asset managers’ minds. There has been a steady roll out of investment products catered to various ESG factors and no shortage of media attention. While there remain questions regarding how to properly incorporate ESG principles, the supply side of the equation does not seem to be a serious constraint. We attempt to quantify the demand side by scrutinizing the eVestment platform activity of our institutional investor and consultant client base — asking, does there exist widespread and increasing interest in ESG strategies?

One way eVestment clients sift through our database of over 25,000 strategies is by using our screening tool, drilling down to their preferred set of investment options by establishing a set of criteria. The below chart shows the number of ESG-related fields used in that screening process as a percentage of total screens. We see that investors and consultants increasingly chose strategies to review based on ESG criteria, accounting for 2.1% of screens for the year ending Nov 2019 from 0.8% LTM through Dec 2018. While 2.1% may seem like a small number in absolute terms, as a point of reference, eVestment collects thousands of data fields from reporting asset managers and returns criteria, consistently the most used on our platform, accounted for roughly 9% of all screens for the year ending Nov 2019.

Number of Screens as Percentage of Total

Source: eVestment Advantage

Consultants & investors only, trailing 12 months.

ESG fields accounted for three out of the 15 criteria which saw the largest increases in usage compared to the prior year, for both equity and fixed income strategies. We also saw near unanimous year-over-year gains for ESG fields not listed below. Usage of negative screening criteria related to the treatment of securities tied to, for example, tobacco, firearms, and fossil fuels, slightly outpaced that of positive screening and sustainability criteria.

Equity Screens

Source: eVestment Advantage

RankLargest Increase YoY
1Returns
2Tracking Error
3Strategy: Total AUM
4Excess Returns
5Is Firm GIPS Compliant?
6Cumulative Returns
7Batting Average
8Portfolio Managers Lost
9Is this product a dedicated ESG strategy?
10S&P/MSCI Sectors: Health Care
11Equity Style Emphasis
12Is this product currently managed with ESG considerations?
13Does this product use an ESG integration investment approach?
14Firm: % Parent Owned
15Firm: Year Founded

Fixed Income Screens

Source: eVestment Advantage

RankLargest Increase YoY
1Excess Returns
2Tracking Error
3Sector Exposure: IG Corporate
4Sector Exposure: High Yield Corp.
5Sector Exposure: EM Gov’t/Sovereigns
6Base Currency
7Sharpe Ratio
8Credit Quality/Approach
9Average Issue Quality
10Fixed Income Style Emphasis
11Does this product use an ESG integration investment approach?
12Does firm have a firm-wide ESG policy?
13Correlation Coefficient
14Willing to manage this product with ESG in a separate account?
15Batting Average

Given lead times in making changes to strategic asset allocations and fulfilling institutional mandates, we find it highly probable that the demonstrated increases in ESG screens represent forward demand for ESG products. Successful execution on ESG offerings may prove highly accretive, and particularly crucial for active managers seeking shelter in a highly competitive landscape.

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