Stockholm (NordSIP) The UN Principles for Responsible Investment has published a new report, Working towards a sustainable financial system: investment consultant services review, which suggests that investment consultants are failing to sufficiently consider ESG issues in investment practices, despite their potential influence over trillions of investment dollars globally.
Based on interviews with 22 consulting firms and industry experts, data from the PRI’s Reporting and Assessment framework, IC Research data and a review of academic literature, the findings suggest a lag in incorporation of ESG factors in investment consultant advice, despite clear evidence demonstrating the financial materiality of ESG factors to portfolio value.
The report suggests actions that could be taken to overcome the barriers it has identified relating to market structure, industry practice and policy and regulation in the consulting market. This includes barriers on both the asset owner and investment consultant sides, and the wider regulatory and policy framework within which both operate.
Some consultants, such as Mercer, however, are more advanced than others when incorporating ESG into their advice. Mercer was the first consultant to include ESG rankings as part of its regular asset manager search and performance data.
“It is time to reconsider what investment advice should look like as a part of a sustainable financial system that serves beneficiaries and individual investors,” said PRI Director of Policy & Research Nathan Fabian. “ESG must be a core part of investment advice, because ESG is a core part of investors’ fiduciary duties.”
“We see market structure, market practice and regulatory reasons why ESG is not currently a core part of investment advice. Addressing these reasons is a necessary step for a more sustainable system,” he said.
The report concludes that a full review of investment consultants’ service delivery according to ESG standards is necessary, including the prompting of a deeper industry discussion about the problem.
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