Russell Investments' 2023 ESG Manager Survey: ESG Factors Increasingly Drive Investment Decision-Making

Russell Investments has released results from its ninth-annual ESG Manager Survey, which offers valuable insights into the evolving landscape of ESG practices within the investment management industry. Results from this year's global survey show employment trends reflect rising attention on sustainable investing, as momentum continues toward net-zero initiatives and reporting on ESG metrics and diversity increases. The survey featured responses from 169 asset managers that represent $20 trillion in assets under management.

"As the industry continues to focus on responsible investing practices, active managers from all major asset classes are increasingly incorporating ESG considerations into their investment processes and hiring for ESG-related roles," said Kris Tomasovic Nelson, Senior Director, Head of ESG Investment Management, Russell Investments. "Climate risk is at the forefront of investors' concerns, and we expect ESG to become further rooted in the investment landscape."

"We've observed a rising emphasis on active ownership as an investment tool; indeed, it emerged in this year's survey as the number one ESG information source," Nelson said. "Most striking, this year only 7% of respondents said that ESG factors do not drive investment decisions, markedly down from the 22% recorded in 2022. We believe this reflects a deepening recognition that ESG issues ? encompassing areas such as climate risk and labor relations ? are financially material."

Key highlights from Russell Investments' 2023 ESG Manager Survey:

Dedicated ESG Hiring: 75% of participants added dedicated ESG personnel in the past year across various functions such as ESG teams (23%), data integration and analytics (10%), stewardship (9%), and equity investment (7%). Compliance emerged as a frequently added role under the "other" category for new ESG roles.

Regulatory push: There is rising demand for ESG-specific compliance due to increasing regulatory requirements, primarily in the UK and Europe.

ESG integration and active ownership: Active ownership has become the top ESG information source. A significant shift was observed, where only 7% claimed that ESG factors do not influence investment decisions, down from 22% in 2022.

Factors impacting investment decisions: ESG considerations such as materiality to reduce security risk (26%), ability to drive positive returns (19%), governance concerns (19%), climate risk (15%), and social risk (15%) prominently shape investment choices.

Increased ESG metric reporting: 66% of managers reported ESG metrics for all funds, an increase from 59% in 2022. Carbon emissions (56%) stood as the top metric, followed by diversity statistics which saw a rise (24%, up from 19% in 2022).

Net Zero Asset Managers Initiative (NZAMi):

• 27% of survey respondents are current signatories, with 6% planning to join within a year.
• Regional disparities in adoption: Europe (80%), UK (58%), Japan (40%), U.S. (20%).
• While most signatories currently manage a small portion of their assets in line with net-zero objectives, two-thirds aim to reach 50% or more by 2030. 13% already manage 80-100% of assets in alignment.

Challenges: Managers globally noted the complexity of integrating ESG information due to diverse client interests. Only U.S. managers cited negative performance repercussions, reflecting ongoing debates on financial materiality in the country.

"Key challenges around ESG integration persist, such as the availability of data, lack of standardized reporting for corporations, and meeting diverse client needs," Nelson said. "Nevertheless, fewer managers are reporting that ESG considerations do not affect their investment decisions. Our annual survey shows an upswing in commitments to responsible investing reporting frameworks and initiatives, and our research suggests that ESG has firmly established itself as a lasting force in the investment landscape."

Jihan Diolosa, Head of Global ESG Strategy at Russell Investments, added: "We know the road for global ESG integration is not without its challenges, but our survey shows that markets are moving toward integration. From here, it is up to asset managers to translate their commitments into reality and ensure their engagement has the desired impact on industry practices."

More information on Russell Investments' 2023 ESG Manager Survey is available here.

About Russell Investments

Russell Investments is a global investment solutions firm providing a wide range of services to institutional investors, financial intermediaries and individual investors. The firm has $291.9 billion in assets under management (as of September 30, 2023) for clients in 30 countries. Headquartered in Seattle, Washington, Russell Investments has 17 offices in major financial centers, including New York, London, Paris, Toronto, Tokyo and Shanghai. For more information, please visit www.russellinvestments.com.

Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional.

Russell Investments' ownership is composed of a majority stake held by funds managed by TA Associates Management, L.P., with a significant minority stake held by funds managed by Reverence Capital Partners, L.P. Certain of Russell Investments' employees and Hamilton Lane Advisors, LLC also hold minority, non-controlling, ownership stakes.