ESG in Asset Management: Investors Spark Action

By Michael Patanella and Mark Zavodnyik, Grant Thornton

Regulation adds complexity to strategy and reporting

Environmental, social and governance (ESG) topics are often at the forefront of discussions across the asset management industry — both in the U.S. and on a broader, global scale.

Investors play a prominent role in driving ESG initiatives forward. In Grant Thornton LLP’s CFO survey for the first quarter of 2023, 37% of respondents said investors are motivating them to enhance the maturity of ESG programs for their organizations. It’s safe to say that many of those same investors have an interest in investing in ESG-friendly funds.

A Stanford University survey conducted last year showed that even if it means decreasing the value of their investment, significant majorities of millennial and Gen Z investors said firms investing on their behalf should use their size and power to influence the environmental practices (85%), social policies (80%) and governance policies (80%) of the companies in which they invest.

Regulation, pushback create complexity

Investors’ desires have some leaders in the asset management industry working to develop offerings that meet certain ESG parameters while still pursuing desired financial returns. Others in the industry who work closely with customers are devoting themselves to finding the best ESG-friendly options for consumers who wish to invest in such funds.

Meanwhile, asset managers who are subject to SEC regulation are awaiting new rules related to climate disclosures as well as ESG fund disclosures and marketing. Finally, many leaders in the various subsectors of asset management are asking:

  • What ESG pressures are they facing and what do their investors expect?
  • What ESG issues are important to the organization and how should the firm define its ESG ambitions?
  • Should the organization have firm personnel dedicated to ESG?
  • How to report ESG activities and performance metrics to stakeholders?

“ESG continues to evolve, grow and change in terms of what it means to asset managers and asset owners,” said Mark Zavodnyik, Director, ESG & Sustainability for Grant Thornton. “It’s important for asset managers to build a strong foundation when developing ESG programs anchored around issues truly relevant to their investments. This foundation-building allows the firm to adapt to developing market, investor and regulatory requirements as ESG continues to evolve.”