The ratification of the Paris Agreement on climate change and the UN Sustainable Development Goals imply significant structural shifts in the global economy. In parallel, growing political attention is being focused on the role of finance to deliver these goals. Asset owners and investment managers will need to play a much more significant role in delivering the transition to a sustainable global economy, while effectively managing the large associated downside risks that have the potential to cause significant financial instability.
This briefing paper assesses the internal capacity of leading investors to consider climate and broader environmental, social and governance (ESG) factors by looking at how many specialised ESG staff signatories of the Principles for Responsible Investment (PRI) employ. Our analysis finds that 33% of signatories directly employ no ESG staff and a further 20% employ just one. This means over 500 PRI signatories, representing $6.9 trillion, directly employ one or fewer ESG staff. On an asset under management (AUM) basis, the average PRI signatory hires one ESG specialist per $14bn of assets managed.
While some investors outsource responsible investing, and others claim to take an integrated approach, it is clear from this analysis that the majority of PRI signatories need to rapidly expand and strengthen their in-house ESG expertise by employing more specialists and training existing staff.
Asset owners and investment managers play different roles in responsible investing. An important finding for policymakers is that asset owners tend to rely on investment managers to deliver their responsible investment policies, where these policies exist. Perhaps because of this, we find that investment managers tend to hire more dedicated ESG staff than asset owners. Policymakers should understand this difference when developing sustainable finance strategies. They should attempt to strengthen asset owners’ responsible investment policies which, in turn, would encourage investment managers to increase their internal capacity.