Research among 85 clients of Aberdeen Standard Investments and Sustainalytics found that only 24% of the sample group were actively using a dedicated smart beta ESG strategy in their portfolio at present.
Smart beta ESG funds give investors access to a group of stocks in a reweighted index, based on their sustainability credentials. At its simplest, a FTSE 350 ESG smart beta fund, for example, may overweight the companies on the FTSE 350 that have a higher sustainability score or exclude those involved in tobacco or weapons manufacturing.
However, while the poll found that adoption of smart beta ESG strategies was still in its infancy, it also found that more than three quarters (76%) of those polled now consider ESG integration when awarding mandates to asset managers. It also found that more than half (54%) use smart beta in their investment portfolios more broadly.
Doug Morrow, director of thematic research at Sustainalytics, said: “While it may be early days for smart beta ESG, our conversations with investors suggest there is substantial quantitative research taking place behind the scenes that is likely to catalyse a deeper integration of ESG considerations into smart beta strategies.”
Collectively, the 85 participating investors in the research have collective assets under management of €6.5trn and are drawn from 21 countries. The research was conducted between December 2017 and March 2018.
Aberdeen Standard Investments’ co-head of quantitative equities, Boyan Filev said: “As both smart beta and ESG continue to grow in popularity it will be increasingly important for asset managers to be able to embed ESG within their smart beta strategies.”
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