Funds Congress Highlights
Navigating ESG Challenges in Asset Management

Environmental, social and governance (ESG) considerations are increasingly a defining factor in the evolution of the asset management industry. This summary highlights some of the factors driving a changing ESG landscape, including the funding challenges and investment opportunities likely to arise from the transition to Net Zero, the importance of establishing a global baseline in reporting requirements and a need to plug a skills shortage in ESG data capture and management in the asset management industry.
Funding the transition to Net Zero: As asset managers consider the long-term implications of a global transition away from fossil fuels in a post-COP28 world, responsibility for financing the shift to Net Zero – possibly the most capital-intensive transition in history – will fall primarily on the private sector. The sheer scale of the capital needed to decarbonise vast swathes of the world economy, including heavy industries such as the cement, steel and aviation sectors, is significant. There is progress, even with government policy some way behind where it needs to be in order to support the transition, some landmark infrastructure and clean-energy projects have already got off the ground and funding opportunities are expected to increase rapidly. Beyond funding opportunities, skilled human resources and new innovative products, processes and technology are all an output of this new industry.
Reporting complexity: The pressure on asset managers to embed ESG in their investment management considerations has already spawned a huge demand for the generation and reporting of information in an attempt to allow them to substantiate their ESG-related claims and to help investors make investment decisions that support ESG initiatives and a transition to Net Zero. There is an increased focus on transition plans and a growing requirement for those plans to be disclosed. The need for a more unified approach to reporting standards is still acute: while the creation of the International Sustainability Standards Board has been a positive step, current reporting standards remain fragmented, underlining the need for a global baseline befitting a global industry. Beyond merely collecting the data, data flows and analysis need to be operationalised and digitalised so it is reportable – people and processes are needed to do this.
Skills shortage: The unrelenting push for data has exposed a lack of expertise in the investment funds industry. ESG reporting requires expertise in financial reporting, knowledge of regulatory requirements and data analysis, in addition to experience in evaluating ESG materiality. With the direction of travel moving towards ever-greater disclosure requirements, the need to plug a skills gap will become more pressing, particularly with regards to the automation of data extraction and integration of data sets into decision-making. Even where organisations possess expertise in these fields, it is often located in different areas of the business, presenting ongoing challenges in finding effective ways to bring expertise together.
Tangible contributions to Net Zero: The implications of the Net Zero transition will also be seen in more profound ways in the industry, not just through the obligation on asset managers to extract data from investment companies at the portfolio level, but also to demonstrate how they are contributing to or accelerating decarbonisation in the real world. A singular focus on greenhouse gas (GHG) emissions – for example a plan to simply sell assets that emit GHG in order to lower GHG exposure – will not achieve effective transition. Likely implications include asset owners quizzing managers via requests for proposals (RFPs), and generally increased due diligence with managers obliged to show how they are implementing transition plans themselves.