Private capital managers are emerging as the strongest advocates for ESG and sustainable investing, BNP Paribas has said in response to the findings of its latest biennial ESG study.
An initiative of the bank’s Securities Services, the study captured the views of 420 institutional investors, split equally between asset owners, asset managers and private capital firms. Spread across 29 countries, the sample represents an estimated $33.8trn (€29.8bn) of assets under management.
While revealing that institutional investors overall remain firmly commited to their sustainability goals, the survey showed that this is especially the case for private capital managers.
Just over half (56%) said geopolitical complexity has not affected their sustainability objectives, compared with 41% of asset owners and 40% of asset managers. Just over a third (34%) said they would be less public about their ESG and sustainable investing achievements compared with 45% of conventional asset managers.
According to the survey, 51% of the responding private capital managers expect to use active ownership to fulfil their ESG goals and are placing more emphasis on social issues (76%) and just transition (63%).
“Most private capital managers believe ESG investing can add value, improve alignment with asset owners, satisfy their stakeholders and enable them to benefit from investment themes around decarbonisation and the shift to a low-carbon economy,” said BNP Paribas.
In a new responsible investment and stewardship outcomes report today, Brunel Pension Partnership, the local government pension pool, said it had made “notable advances in tracking, reporting, and improving outcomes in private markets, where RI progress is more challenging”. Details include that 90% of the managers overseeing its latest private debt investment cycles have pledged a commitment to carbon emissions reporting.
Many of the private capital managers surveyed by BNP Paribas are relatively small, specialist organisations and the overwhelming majority are located outside the USA.
Pace of progress
In its survey report BNP Paribas said it was “critical” to note that almost three-quarters (74%) of investors ‘expect the pace of progress towards sustainability to continue at the same pace between now and 2030’.
It said this was consistent across regions and organisation types, and that the finding was reinforced by the group it identified as “pacesetters”, where nearly two-thirds of respondents expect to use more thematic investment opportunities.
However, 23% of all respondents said the trajectory towards more sustainable development will “continue with less publicity”, while 22% think it will “continue with enhanced publicity”. Although 16% indicated it would slow down, 11% said the pace of progress would accelerate.
Other findings include that thematic investing has increased in importance since 2023, “as investors try to find more nuanced opportunities for impact and alpha generation”. Last week two Natixis Investment Managers affiliates unveiled plans to merge, aiming to create a global leader in thematic investing with a strong responsible investment focus.
In terms of institutional investors’ primary sustainability/ESG objectives in the next two years, the BNPP survey showed that these are: ‘Increasing allocations to energy transition assets’ (49%), ‘using active ownership to advance their own organisation’s ESG goals’ (47%), ‘investing in low-carbon assets while divesting from carbon-intensive assets’ (46%), ‘reporting carbon emissions’ (43%) and ‘promoting social issues’ (39%).
According to BNP Paribas, these priorities indicate that investors “are aiming to drive capital towards areas of high impact while being in a strong position to influence investee company behaviour and manage emerging ESG risks”.
Compared to 2023, integrating DEI goals into investment policies dropped down the ranking in terms of a key objective, with 41% selecting this in 2023 and 29% this year, kthe survey found.
“These differences can be said to reflect the investors’ geographical context, energy dependencies and social climate,” said BNP Paribas.
Pacesetters
As concerns the “pacesetters”, the bank said that findings include that they show a higher propensity to conduct their own research methodologies, such as creating benchmarks or in-house ESG scores, to tackle data challenges related to ESG/sustainability (65% versus 50% and 30%).
Meanwhile, “continued support of ESG expertise is also seen in their intention to allocate more budget in relation to their sustainable investment strategy to hire specialised ESG talent (63%),” the bank noted.
“In addition, the pacesetters also plan to add resources to ESG data acquisition and analysis and to reporting, impact measurement and disclosure, as part of their sustainable investment strategies.”
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