Demand from institutional investors for sustainable assets and dedicated environmental, social and governance (ESG) products is expected to grow manifold in the coming decade.

CRISIL GR&A conducted a bottom-up study to understand the prevailing ESG practices of 60 global AMs based on their public disclosures. We see operational gaps and insufficient investment in ESG capabilities necessary to achieve integration and meet investor expectations.

Only 10% of the AMs have embraced the best-in-class ESG practices across the entire investment value chain. Around 80% of the AMs are catching up on best-in-class integration, but they face multiple operational bottlenecks. Some of the common gaps are underdeveloped material frameworks, inadequate data competencies and insufficient specialists in ESG teams.

A successful ESG strategy will encompass a holistic data strategy executed by a team of fundamental research analysts and ESG specialists. It will be underpinned by a savvy investment process focused on sustainability outcomes and continuous monitoring of risks and performance. In this context, AMs have to take the following steps:

• Build custom-integrated frameworks with focus on financial materiality
  
• Address the missing data challenge with deep domain knowledge and proxy data sources 
  
• Streamline the investment process to focus on sustainability alignment and real-time monitoring 
  

Click here to know more about the CRISIL GR&A and Greenwich Associates' Discussion Forum on Building best-in-class ESG practices