Anyone who thought ESG was a passing fad can think again.
The announcement this week that Mercer, which has led the consulting industry on standalone ESG ratings, will now integrate those factors across its ratings process has cemented ESG as an important investment risk and return consideration.
The consultant rates more than 20,000 investment strategies globally, oversees more than $5 trillion in assets under advice and has $60 billion of assets in its multi-manager products.
The move will mainstream ESG in the investment manager community, whether the managers are ready for it or not.
The Mercer researchers will look at ESG factors alongside their other research considerations, and the expectation is that managers should do the same.
It reflects the powerful position that consultants maintain in influencing manager behaviour and investment trends. It will only be a matter of time before other consulting firms follow Mercer’s lead.
Mercer looks at ESG ratings across the generation of investment ideas, construction of portfolios, implementation of active ownership practices through voting and engagement, and the demonstration of a firm-wide commitment to ESG issues.
It now rates 5,000 investment strategies on ESG factors, with only 9 per cent of those receiving the top ESG rating.
Of its entire universe of 20,000 strategies about 10 per cent receive an A rating, or recommendation status. Of these 80 per cent have an ESG rating, and it won’t be long before that figure is 100 per cent.