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Risk management primary driver for ESG among asset owners

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Environmental, social and governance issues must be fully integrated into long-term management to reduce risk and improve financial performance, according to a survey of investors by Novethic.

The survey of UK and French investors, which was carried out with the support of BNP Paribas Investment Partners, found that this opinion was shared by all UK respondents and 94 per cent of French respondents.

Despite this common viewpoint, cultural differences remain, especially in terms of their consideration for each of the ESG issues. Sixty five per cent of French investors look at all three issues as a whole, as do 45 per cent of UK investors. However, while none of the UK respondents consider the social aspect the most important, it is the main focus of 19 per cent of French respondents.

They are also divided on environmental issues, which are stressed by ten per cent of UK investors but only three per cent of the French. Lastly, only 13 per cent of those surveyed in France highlight the importance of governance, versus 45 per cent of those in the UK.
 
Asset owners understand the appeal of ESG criteria, but their willingness to influence corporate ESG strategies has declined sharply since 2008. Fifty eight per cent of French respondents stated that they are willing to do so (as against 71 per cent the previous year) as are 48 per cent of UK respondents (versus 72 per cent in 2008).

The two countries do not share the same priorities in terms of shareholder activism. Again, the majority of French respondents (53 per cent) believe that they must act in all three areas while nearly half of UK respondents focus on governance measures. However, no UK investors feel it is their role to become involved in companies’ social policies. This trend grows stronger when it comes to redundancy plans, with two-thirds of French asset owners stating that they would demand an explanation from the company, compared with only one-third of the British.
 
The majority of the investors surveyed have understood that climate change will have a global economic impact on all companies, although this applies to a higher proportion of UK respondents (63 per cent versus 52 per cent). Both French and UK asset owners expect companies to define an energy consumption policy, set targets to lower greenhouse gas emissions and provide standardised environmental reporting.

Another point of agreement is executive compensation, which 75 per cent of the investors surveyed believe they should supervise. They feel that they are in a better position to do so as shareholders, as opposed to public authorities or the companies themselves. This opinion is shared by nearly all UK respondents and 60 per cent of French respondents.

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