Chapter 1
Opportunities and challenges
Other than the ESG disclosures, investors are looking for investments that incorporate impact investing.
Investors are increasingly asking whether asset managers have considered the ESG risks and whether such risks have been adequately addressed. They are assessing not only the financial performance but also the nonfinancial factors of the underlying investments. According to the 2020 EY Climate Change and Sustainability Services (CCaSS) Institutional Survey, 72% of investors surveyed conducted a structured methodical evaluation of nonfinancial disclosure – a significant jump from the 32% in 2018.
2020 EY Climate Change and Sustainability Services (CCaSS) Institutional Investor Survey
72%of investors surveyed conducted a structured methodical evaluation of nonfinancial disclosure.
According to the 2019 Annual Impact Investor Survey by Global Impact Investing Network(GIIN), the overall impact investing AUM was estimated at US$502 billion as of the end of 2018. Asset Managers accounted for approximately 50% of the estimated AUM, reflecting the fact that investor preference for ESG factors were becoming mainstream. Asset managers are responding to these needs by offering ESG integrated funds with impact investing strategies, or by focusing on specific social or environmental theme or outcomes, such as decarbonization, high-impact disease research and greenhouse gas emissions.
Asset managers are facing several challenges to address investors’ needs and concerns, such as:
- Limited availability of data
- Lack of expertise on ESG issues
- Difficulty in identifying if ESG factors are integrated to the core
- Cultural challenge of viewing ESG as a compliance exercise rather than a value creator
The Securities and Features Commission (SFC) launched a consultation in October 2020 on a proposal to amend the Fund Manager Code of Conduct (FMCC) and set out baseline requirements and enhanced standards for fund managers in order to strengthen the investment and risk management and disclosure of climate-related risks.
Asset management firms should look at the inclusion of ESG factors and their alignment with key regulatory expectations as a critical immediate priority.
Chapter 2
Key priorities for asset managers and other industry players
Asset management should understand areas for development and focus on implementing strategic plan.
Chapter 3
What services can we offer to asset managers?
EY seeks to assist firms in creating a strategic plan
ESG Investment Strategy Advisory
EY CCaSS team aims to provide clients with broad range process ESG investment advisory services, which are designed to help clients address emerging ESG opportunities, manage risks, reduce compliance costs, and improve operational and performance effectiveness.
ESG Performance Analysis Services
EY ESG Performance Analysis model intends to help investors understand ESG risks and opportunities.
ESG Risk Management Advisory
EY CCaSS team assists clients in the corporation of ESG factors and in improving or developing risk management systems with integrated leading consulting metrics. EY ESG risk management systems integrates leading non-financial risk management toolboxes in the market, which include:
- Climate scenario analysis
- Environmental stress testing
- Nonfinancial risk profile dashboard
ESG Reporting Assurance and Advisory
EY assists fund managers in complying with regulatory requirements, such as:
- Performing an independent review or assurance verification on the practices and controls as a fund manager pertinent to the revised SFC’s FMCC
- Recommend enhancement opportunities
Summary
Asset management firms should look at the inclusion of ESG factors and their alignment with key regulatory expectations as a critical immediate priority. This should be done in order to understand key areas for development and to focus on implementing a strategic plan in the long term, based on the priorities identified.
