Most investors prefer to use actively managed funds to deal with 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 integrate ESG, suggesting that investors want managers to use active security selection to uncover ESG opportunities and active ownership to engage and influence investee companies.
While more than half of publicly traded assets in equity funds in the U.S. are now in index-tracking strategies, Bloomberg is reporting that some passive strategies have struggled to adapt to recent ESG shocks such as the recent tech stock selloff and the war in Ukraine.
Broken down geographically, active funds are most popular among North American (69%) and European (68%) investors.
Capital Group pointed to what it characterized as “inconsistent and inaccurate ESG scores” used to grade companies as a weakness in the industry that active managers are better equipped to handle. Goldman Sachs Asset Management has also expressed this view, having warned of “huge subjectivity” in ESG ratings that active managers are better off avoiding.
“ESG adoption rates appear to be firmly embedded amongst professional investors globally, with a growing preference for active managers to make the critical investment decisions,” said Jessica Ground, Capital Group’s global head of ESG, in a statement.
This preference “underscores the complexity of assessing ESG issues and that reducing them to a single ESG score can’t capture nuanced company evaluations,” Ground added. “Investors are hence turning to active managers who can focus on deep proprietary research, robust monitoring systems, and engagement to analyze companies.”
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