Most investors prefer active management for ESG

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MMost investors prefer to use actively managed funds to address environmental, social and governance issues, according to the results of a study sponsored by Capital Group. Of the 1,130 investors surveyed, nearly two-thirds (63%) prefer active funds to incorporate ESG, suggesting that investors want managers to use active stock selection to uncover ESG opportunities and active ownership to engage and influence beneficiary companies.

With more than half of publicly traded assets in equity funds in the US now in index strategies, Bloomberg reports that some passive strategies have struggled to adapt to recent ESG shocks such as the recent sale of technology stocks and the war in Ukraine.

Geographically distributed, active funds are most popular with North American (69%) and European (68%) investors.

Capital Group pointed to what it called “inconsistent and inaccurate ESG scores” used to classify companies as an industry weakness that active managers are better equipped to manage. Goldman Sachs Asset Management has also expressed this view, after warning of “huge subjectivity” in ESG ratings that active managers are better off avoiding.

“ESG adoption rates appear to be firmly entrenched among professional investors around the world, with a growing preference for active managers to make critical investment decisions,” said Jessica Ground, global head of ESG. ESG at Capital Group, in a press release.

This preference “highlights the complexity of assessing ESG issues and that reducing them to a single ESG score cannot capture the nuanced assessments of companies,” Ground added. “Investors are therefore turning to active managers who can focus on in-depth proprietary research, robust monitoring systems and a commitment to analyzing companies.”

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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