The rapidly evolving world of Environmental, Social and Governance (ESG) is having a large direct impact on asset owners, and therefore both a large direct and indirect impact on asset managers who must support their clients’ growing demands.
What does this mean for asset managers? The scale of demand for ESG-related services is substantial and will only increase in the future. Managers must have the right capabilities in place to meet both current and future client needs concerning data, products, partnerships and expertise.
What are clients’ needs related to ESG?
Asset owners are facing an array of ESG requirements and expectations that managers must help meet:
- Strategic Direction – Asset owners are becoming increasingly vocal on their ESG beliefs and require these to be reflected in their choice of manager
- Regulatory Change – Much of the incoming ESG regulation impacts asset owners (e.g. Solvency II, Independent Governance Committees) and they will need data and reporting from asset managers to fulfil these requirements
- Voluntary Codes – The obligations of signatories to voluntary codes (e.g. UK Stewardship Code, TCFD) are becoming increasingly strict, and asset owners need to use data from managers to evidence that they are compliant
- Customer Expectations – Today’s investors expect their funds to be managed sustainably with considerations for both current and future ESG risks and opportunities
- Investor Strategy – Asset owners have ESG requirements and restrictions for the types of assets they invest in, and the manager must meet these
… How does this translate into increased demand for ESG-related services?
Due to the growing client needs, the scale of services required from managers has significantly increased. These are:
- Partnering – Managers should establish partnerships with strategically important asset owners to better support their ESG requirements and visions
- Thought Leadership – Managers must have the right skills and expertise to provide leadership on ESG integration, products and topics
- Solutions – Asset owners might have specific interests in certain products, strategies and services that managers are required to develop with them
- Reporting and Data – Managers must evidence the ESG considerations they are making as part of the investment process and that these are intrinsic to their operations. Furthermore, ESG data should be available at any point to support asset owners’ commitments to their customers and regulation
Addressing these four areas will result in a scalable platform built on the right foundations with the right capabilities in place.
So, what should you do to sufficiently meet client demands?
Several capabilities must be in place to successfully meet client expectations:
- Strategy & Vision – Some asset owners have started speaking up and taking a stance on their ESG beliefs. You should do the same to demonstrate your beliefs, expertise and commitment to ESG
- Client Experience – Large strategic asset owners expect to develop partnerships with their managers. Meaning that you must have the right structures and teams in place to support this
- Specialist People & Organisation – You must have the right in-house technical skills and expertise to both support and challenge clients to further push their ESG agenda
- Investment Philosophy – You cannot evidence commitment to ESG if it is not fully integrated. You should consider ESG throughout the investment process for every asset class; it is entirely feasible to apply this discipline to the most exotic of investments
- Reporting & Analytics – Robust infrastructure must be in place to produce frequent ESG reporting at scale. At the core of this is data. You must acquire, integrate and manage the right data to support your proposition, reporting and any ad hoc data requests
If you can tick off the above capabilities, you are well positioned. Without these, you are likely to be on the back foot and forced to hurriedly react to increasing client needs. You have a choice on what to do next. Will you remain reactive, or proactively prepare for this growing demand?