Only 9% of investment strategies get top ESG ratings – Mercer

Only 9% of more than 5,000 investment strategies achieve the highest environmental, social and governance (ESG) ratings, according to an analysis performed by Mercer’s Investments business.

Since 2008, Mercer has been assigning ESG ratings to investment strategies that span asset classes and geographic regions. Using a four-point scale, Mercer considers strategies earning a 1 or 2 as “highly rated.”

The ratings reflect the degree to which portfolio managers integrate the consideration of ESG factors and utilise shareholder stewardship practices within the investment process. Ratings are assigned by members of Mercer’s manager research boutiques as part of the core research process.

“We were not surprised to see a relatively low percentage of strategies achieve top ratings, as our approach involves setting a high bar. We aim to identify truly market-leading capabilities in integrating ESG factors and pursuing active ownership,” said Andrew Kirton, Mercer’s Global chief investment officer.

“There is still much work to be done by the investment community to fully integrate responsible investment practices. We would expect the number of highly rated strategies to increase over the next few years as more and more investment professionals come to recognise the sound investment and competitive reasons for active ownership.

“The way money is being managed is evolving – our role is to help clients achieve better investment outcomes, and we believe ESG analysis and active stewardship practices support this. In particular, active engagement with companies where performance is seen as wanting ought to have a complementing role in investment management, alongside the sale and purchase market disciplines.”

Of the 5,175 strategies assigned ESG ratings, 57% are in listed equities, 20% fixed income and the remaining 23% across real estate, private equity, hedge funds and others. Private equity has the highest proportion of highly rated ESG strategies, while hedge funds and fixed income had the fewest. From a geographic perspective, Emerging Markets and Asia-Pacific have the highest proportion of top ratings, while Canada has the least.


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