- Carbon emissions data ranks as the most reported ESG profile metric at 87%

- 68% of managers globally identify climate change/environmental issues as their clients’ top ESG concern

- About half of managers reporting DEI data have investment teams with less than 20% gender or ethnic minority representation

Portfolio carbon intensity measure is largely underreported outside of listed equities and corporate bonds due to data limitations and non-standardized reporting frameworks, making it a challenge for investment firms to meet stricter environmental, social and corporate governance (ESG) regulations, according to Russell Investments’ eighth-annual ESG Manager Survey of 236 asset managers globally.

Russell Investments’ survey found that carbon emissions data (87%) is currently the most highly reported ESG metric. Carbon intensity is reported by most firms investing in listed corporate securities (Listed equity: 86%; Corporate bond – investment grade: 62%; Corporate bond – high yield: 57%). However, very poor data availability or lack of standardized reporting frameworks mean less than 30% of firms allocating to other asset classes are able to report on carbon-related metrics of their respective portfolios.

Amid increasing ESG-reporting expectations for the industry, the survey findings indicate ESG data and reporting continue to be a challenge. Many firms assign qualitative ESG scores, while carbon data is more often scientific based. Among fixed income firms, for example, 41% of survey respondents said they have ESG-related data for developed market sovereign bonds, while only 27% have some form of carbon data in this segment. In the securitized bond market, 20% of fixed income firms have some form of ESG data while only 8% have some form of carbon data.

“The results highlight further improvements are still needed around ESG data. In the corporate bonds space, there are still several challenges such as disclosure practices in privately held companies or applying carbon measures in green bonds. Outside corporate issuers, ESG-related reporting continues to evolve in an unstructured fashion due to the absence of clear industry standards. There are some proposed frameworks to account for sovereign issuers’ emissions which is a welcome development,” said Yoshie Phillips, Head of Fixed Income ESG Investing at Russell Investments.

While carbon emissions data captures a snapshot of an entity, the survey reveals a growing trend toward evaluating the energy transition with forward-looking views, as suggested by the increase of asset managers collaborating with industry organizations focused on the energy transition such as the Net Zero Asset Managers initiatives. 26% of the respondents are signatories to the Net Zero Asset Managers initiatives, up from 10% in last year’s survey.

“During our conversations with asset managers, we often hear about the challenges of third-party ESG data providers’ outputs and how they try to augment it with their in-house forward-looking ESG analysis,” Phillips said. “We are seeing more support for standardized disclosures in key ESG metrics.”

Climate risk is the most prevalent ESG issue that investment firms hear about from clients for nearly half (45%) of the respondents, up from 39% in 2021. Climate risk is the dominant issue among respondents in Canada, the United Kingdom and Australia. Findings show investors are very much focused on climate and environmental issues more broadly, and other ESG issues do not resonate nearly as strongly anywhere. Among other ESG issues, U.S. respondents reported relatively higher engagement from clients on issues related to diversity, equity and inclusion (DEI).

The survey also shows growing efforts to incorporate DEI practices in asset management. Among those reporting their DEI statistics, 54% have less than 20% women and 40% have less than 20% ethnic minorities in their investment teams. Meanwhile, 4% of the respondents have more than 40% women and 17% have more than 40% ethnic minorities in their investment teams.

“DEI demographic data disclosure is scarce in the industry, and we found that gender disclosure is generally greater than ethnic minority status. Recognizing the regulatory differences where reporting such data is discouraged in certain countries and the global definitional challenges, having this DEI data set allows us to monitor progress as well as give us a better sense of the overall demographic of the industry,” Phillips said.

Russell Investments’ annual ESG manager survey offers a broad representation of the industry by asset size, region and investment strategy offerings. About 30% of the 236 respondents have less than $10 billion in assets under management (AUM), while 33% have more than $100 billion in AUM. In terms of products, 184 offer equity strategies, 147 offer fixed income strategies, 77 offer private markets strategies and 66 offer real assets strategies.

“This year’s results reveal that the ESG journey is continuing at a markedly escalated pace, with regulators across the globe aggressively stepping in to try defining sustainable investing and to increase disclosure requirements, and asset managers trying to keep up,” said Phillips. “In that process, more discussions are happening among the asset management community to address the challenges, especially around ESG data and reporting standard frameworks. Our survey also indicates client demand and risk mitigation are among the key reasons that asset managers are integrating ESG factors into investment processes.”

More information on Russell Investments’ 2022 ESG Manager Survey is available here.

About Russell Investments

Russell Investments is a leading global investment solutions firm providing a wide range of investment capabilities to institutional investors, financial intermediaries, and individual investors around the world. Building on an 86-year legacy of continuous innovation to deliver exceptional value to clients, Russell Investments works every day to improve the financial security of its clients. The firm has $274 billion in assets under management (as of 30/09/2022) for clients in 32 countries. Headquartered in Seattle, Washington, Russell Investments has offices in 19 cities around the world, including in New York, London, Toronto, Tokyo, and Shanghai.

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