Understanding the ESG landscape: Key insights from our 2023 Manager ESG Survey

Executive summary:

• Russell Investments’ 2023 Manager ESG Survey, now in its ninth year, continues to offer valuable insights into the evolving landscape of ESG practices within the investment management industry.
• Our survey covers a wide range of topics including ESG commitments, challenges, and reporting, Net Zero target setting, active ownership, and diversity.
• For active managers, key challenges include the availability of data, reporting standardisation for corporates, and meeting diverse client needs. Nevertheless, our research shows that commitments to responsible investing reporting frameworks and initiatives continue to rise.

The backdrop

Introduced in the early 2000s and initially an esoteric term, ESG—standing for environmental, social, and governance criteria—has firmly embedded itself in mainstream discourse. Even so, the investment community continues to grapple with how to integrate ESG elements into their decision-making processes. Notably, while regions like Europe, Canada, and Australia have fortified their reporting mandates, the United States remains engaged in a contentious debate.

For investment professionals, key challenges to ESG integration include the availability of data, lack of standardised reporting for corporates, and meeting diverse client needs. Nevertheless, fewer managers are reporting that ESG considerations do not affect their investment decisions, and there is an upswing in commitments to responsible investing reporting frameworks and initiatives. Our research suggests that ESG has firmly established itself as a lasting force in the investment landscape.

The survey

Russell Investments’ 2023 Manager ESG Survey, now in its ninth year, continues to offer valuable insights into the evolving landscape of ESG practices within the investment management industry. Garnering results from 169 participants globally—a mix of equity, fixed income, real assets, and private markets asset managers—the survey offers a comprehensive view of industry-wide perspectives on ESG integration, the momentum toward net-zero objectives, diversity initiatives, and more. The participant roster is broad, encompassing a range of investment approaches from sustainable investing boutiques and large traditional managers. The collective assets under management (AUM) for 2023 was nearly US$20 trillion¹, with entities ranging from firms with an AUM of less than $10 billion to those with over $500 billion. Geographical diversity is also evident, with a significant majority based in the U.S., but also strong participation from Europe, the UK, Australia, and New Zealand.

Respondents' asset class offerings
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While the response rate for the 2023 survey was lower year-over-year—possibly due to survey fatigue— the demographics of our respondents suggest we continue to capture a broadly representative set of industry perspectives.

Responses received for the 2023 survey were often consistent year-over-year, with results suggesting that a number of trends are continuing.

Managers continue to hire into ESG-related roles

Employment trends among respondents reflect rising attention to sustainable investing. Our survey results suggest that managers continue to hire into ESG-related roles, adding specialists across functions including data analysis and compliance. As shown below, 75% of participants reported hiring dedicated ESG personnel, primarily to ESG or sustainability teams. 10% of firms also reported adding to their data integration and analytics teams. “Compliance” was a frequent response added under “other”. Increasing regulatory requirements around the globe“but primarily in the UK and Europe“have led to an increased demand for ESG-specific compliance.

In the past year, in which areas have you hired dedicated ESG resources?
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ESG integration

As in the past, our survey included several questions meant to gauge the managers’ means of integrating ESG-related data and information within their investment processes. Asset managers continue to tap into a wide range of ESG information sources to bolster investment decisions. We’ve observed rising emphasis on active ownership as an investment tool; indeed, it emerged as the number one ESG information source according to participants. Most striking: this year only 7% said that ESG factors do not drive investment decisions, markedly down from the 22% recorded in 2022.

When do ESG inputs or issues most often impact your firm's investment decisions?
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Respondents indicated consistent momentum toward Net Zero initiatives.

As the focus on sustainable investing intensifies, the commitment to the Net Zero Asset Managers initiative among firms paints a revealing picture. 27% of respondents indicated that they have already committed to the Net Zero Asset Managers initiative, while 6% of respondents indicated they plan to sign up in the next 12 months. This figure is the same as in 2022, which could suggest similar adoption momentum, despite a notable public withdrawal by a large, U.S.-based asset manager in 2022. Many also explained that while their plans are unsettled, they are currently evaluating the initiative.

Adoption varies dramatically by region. 80% of respondents domiciled in Europe are already signatories, versus 58% in the UK, 40% in Japan, and only 20% in the U.S. Managers responded that the Paris Aligned Investment Initiative’s Net Zero Investment Framework (NZIF) is widely preferred as the framework for establishing targets.

Upcoming manager signatories in 12 months
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Net zero aligned assets under management are low but managers’ interim targets suggest a meaningful ramp up into 2030.

Among firms that are NZAMi signatories, the majority currently manage only a small portion of assets in alignment with net-zero objectives. However, they anticipate this number to grow, as reflected in their 2030 targets. Specifically, 35% of managers, represented in orange and blue in the pie chart below reported that current “net zero” assets are equal to or less than 14% of their total AUM.

Exhibit 4: AUM managed in line with net zero goals

Respondents' AUM currently managed in line with net zero goals
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Meanwhile, two-thirds have said that their 2030 interim targets are to reach 50% or more of AUM in line with net zero by 2030. 13% of managers in our survey are already managing 80-100% of assets in alignment.

Exhibit 5: Interim net zero targets

Respondents' 2030 interim net zero targets
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Data is still one of the biggest challenges to integrating ESG information