• Over 98% of responding groups consider Responsible Investment to be a strategic priority.

• 82.8% expect to have finalised RI propositions by the end of 2025.

• 98.3% of respondents subscribe to the UN Principles for Responsible Investment.

Square Mile Investment Consulting and Research (Square Mile) today releases its original research into fund groups’ adoption of Responsible Investment (RI) within their overall proposition and their perception of its future importance for their businesses. The findings, based on a survey completed by 59 asset management businesses over the course of March and April 2022, reveal that nearly all (98.3%) consider Responsible Investment to be a strategic corporate priority.

The questionnaire-based survey aimed to gather intelligence on how RI is embedded across fund groups, how deeply it is integrated into their investment solutions and on their RI reporting practices. Despite a broad recognition of the future strategic importance of RI, most asset managers are still developing their proposition. Only 15.5% of those who participated felt they had finalised their RI offering, although 82.8% expected this process to be complete by the end of 2025.

This journey to Responsible Investment is reflected in the qualitative research conducted by Square Mile’s team of analysts as part of their ongoing ESG Integration assessments. These allocate one of seven scores between zero and three demonstrating how deeply ESG influences practices and processes at a company and fund level for all groups within the Academy of Funds. Since these assessments were launched in October 2019, there has been a steady improvement in scores: in October 2019, 58.0% scored two or above at a company level, rising to 68.0% in May 2022. At the same time, there has been a 76.7% decrease in the number of groups scoring zero.

To determine how asset managers are seeking to evidence their commitment to Responsible Investment, they were asked to highlight to which external initiatives they had subscribed. The most widespread was The UN Principles for Responsible Investment with 98.3% of groups being signatories, followed by The Investment Association (84.7%), The Task Force for Climate-Related Financial Disclosures (76.3%), Climate Action 100+ (64.4%) and Net Zero Asset Managers Initiatives (64.4%). However, the participants highlighted a further 92 initiatives, groups or panels which they have joined as part of their commitment to prioritise RI.

When asked the rationale for developing their Responsible Investment proposition, over half (52.5%) viewed it as a risk management tool while 50.8% recognised its importance in meeting evolving client preferences. RI’s potential to deliver in financial terms was also recognised with 49.2% believing it to be fundamental to achieving financial outcomes and 89.8% either disagreeing or strongly disagreeing that RI does not contribute to financial returns.

As fund groups come under increasing pressure to provide transparent reporting on the impact of their investments, they are responding with enhanced information for their clients. Over two thirds (69.5%) provide an Annual Stewardship Report detailing a firm’s broader purpose regarding RI and their efforts to become a more responsible corporate citizen. At a fund level, 59.3% make Annual Impact or Sustainability Reports available to their clients. However, far fewer offer either internal or external metrics on their funds on a quarterly basis at 39.0% and 33.9% respectively.

Steve Kenny, Square Mile’s Chief Distribution Officer, said, “We strongly believe that Responsible Investment is a journey - not only for fund groups, but also advisers and their clients. This is a rapidly evolving area of the market as fund groups refine their investment propositions, articulate their particular approach, and enhance their reporting to demonstrate the benefits they are delivering in terms of returns, to the environment and society alike.

“The responses we received from 59 fund groups from those represented in our Academy of Funds provide a useful marker on where they perceive their businesses to be as they adopt Responsible Investment within their overall offering. As might be expected, some have made significantly more progress than others, but it is encouraging that all companies seem to be marching in the same direction. We believe that capital flows will continue to be directed towards businesses that are part of the solution to many of the problems faced by the environment and society and those fund groups who fail to embrace Responsible Investment will fall behind their peers.”

For more information on this research, please do not hesitate to contact us.