Asset managers and owners expect their investment in ESG alternative assets, including hedge funds, infrastructure, real estate and private equity and debt, to increase by 20 percent in two years, according to a new study.
“Engagement with companies is seen as a key tool by investors to manage ESG
risks in their portfolio and investors are partnering up to increase pressure on companies,” said Jean-Philippe Hecquet, product specialist with the investment risk and performance team at BNP Paribas.
The BNP Paribas report, “Great Expectations: ESG – what’s next for asset owners and managers,” found that 60 percent are investing in sustainable investment opportunities such as green bonds, sustainable bonds and thematic funds.
“The popularity of green bonds, sustainable bonds and thematic funds demonstrates where the focus is for institutions and asset managers,” Hecquet said. “Environmental factors have a greater influence than governance factors, which is a significant trend for financial advisors because they may want to incorporate these instruments into their portfolios as well.”
Toyota’s Asset Backed Green Bond is one example.
“We see excellent investment opportunities for the growing interest among investors and consumers alike in environmentally friendly, energy efficient, clean transportation,” said Tyler Dickson, global head of capital markets origination with Citi. “The marketplace is eager for these investments.”
Proceeds of this particular green bond will be used to fund new retail finance contracts and lease contracts for Toyota and Lexus vehicles that meet specific criteria, including power train, fuel efficiency and emissions.
The study further found that 64 percent of asset owners and 47 percent of asset managers are concerned that a lack of data could act as a barrier to greater adoption of ESG.
“There will be challenges both in terms of obtaining and analyzing ESG data, which will require new skill sets, tools and the application of new technology,” said Andrew Dougherty, North American head of alternative and institutional solutions for BNP Paribas.
In light of these challenges, advisors will likely increasingly turn to custodians for the development of ESG analytics.
“They can directly subscribe to specialized data providers to access raw ESG data,” Hecquet said.
In addition to Morningstar’s sustainability rating, BNP Paribas Securities Services offers ESG Risk Analytics which provides investors the ability to assess
ESG portfolio exposures.
“There’s been progress but there’s still not only a lack of companies reporting but also lack of quality data asset managers and institutional investors are receiving from companies they invest in,” said Hecquet. “The perfect analytical tool that the ESG investing industry could benefit from would ideally include scenario analysis and financial evaluation of the ESG data.”
Juliette Fairley is a business and finance journalist who has written four personal finance books and has written for major news organizations. Juliette can be reached at firstname.lastname@example.org.
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