Sydney, July 1, 2006 AEST (ABN Newswire) - Australian equity managers are engaging with companies on corporate governance issues, but environmental and social issues are not yet being widely integrated into the investment decision making process, according to a recent study.
- Australian mainstream managers evaluated on performance in relation to ESG issues for the first time
- Most managers are voting on resolutions, and engaging with companies, in relation to corporate governance policies
- Few managers demonstrate capability to integrate ESG issues into investment analysis
Mercer Investment Consulting has undertaken the study of 27 high profile Australian equity managers to assist its institutional investor clients (such as superannuation funds) in assessing the degree to which managers are integrating environmental, social and governance (ESG) issues into their investment decision making processes.
The study is part of a global initiative of Mercer Investment Consulting and this is believed to be the first time that Australian managers have been evaluated, by an investment consultant, on their performance in relation to ESG issues.
Mainstream managers were assessed on three factors:
Voting and engagement on corporate governance issues;
Voting and engagement on environmental and social issues;
Integration of ESG issues into investment decision making processes.
The survey found that almost all managers scored above average or average when it came to voting and engaging with companies on corporate governance issues.
In contrast, relatively few managers scored average or above average on their ability to engage with companies on environmental and social issues, or to integrate ESG issues into mainstream investment analysis, indicating that they are not basing investment decisions on ESG issues to any significant extent.
Geoff Stewart, Mercer's Responsible Investing (RI) expert for Australasia said, "While there is a growing awareness of environmental and social factors, such as the effects of pollution or workplace safety issues, widespread integration into mainstream decisions is some way off.
"Corporate governance policies are now virtually universal which is not surprising given the increased focus that Sarbanes Oxley and CLERP 9 has brought about. However, managers have been slower to engage with companies on environmental and social issues, with the exception of those issues expected to affect the share price over a short time frame."
Stewart observed that many managers believe they are integrating ESG issues but are not extensively recognising the issues beyond corporate governance.
"We do however expect that ESG issues will have a greater influence on mainstream investment decisions as awareness as to the nature of ESG risks increases and it is more widely appreciated that these risks can potentially impact investment returns," Mr Stewart said.
Stewart said an increased interest from clients in Australia and overseas prompted Mercer to expand their research to incorporate ESG capability.
"Globally, Mercer has seen more interest from clients on ESG issues, both those who are considering the ability of a manager to integrate ESG issues when they are searching for a new manager and mainstream investors who do not wish to be labelled 'RI' but still want to demonstrate that they invest responsibly.
"Recently more than 20 leading institutions, representing ownership of more than US$2 trillion in assets, signed the UN Principles for Responsible Investing which indicates that institutional investors are placing greater importance on ESG issues. Our research meets a growing demand for research to aid the practical implementation of responsible investment practices through global expertise and industry leading research," Mr Stewart said.
Table 1: Capacity of investment managers to integrate active ownership and ESG issues into the investment decision making process
------------------------------------------------------------------------Factor Voting and Voting and Integration Overallscore engagement on engagement on of ESG issues corporate environmental and governance social issues ------------------------------------------------------------------------++ 10 2 1 2+ 16 8 5 7= 1 12 12 13- 5 9 5------------------------------------------------------------------------
Managers are scored according to their capacity and capabilities on each factor. Scores range from "++" for managers that demonstrate "well above average" capabilities, to "-" for managers that are not able to demonstrate an acceptable capacity in an area, with scores of "+" or "=" given to managers that fall somewhere in between.
Source:
Mercer Investment Consulting
Contact
Kyahn Timms / Danielle Murdolo
Media consultant to Mercer
T: 03 9866 4722 / 040 101 8828
Email: ktimms@bcg.com.au / dmurdolo@bcg.com.au
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