One of the most significant changes in responsible investing in recent years is the growing demand for transparency in reporting, according to the latest Cerulli Edge—U.S. Institutional Edition. With increasing pressure from stakeholders, including regulators, clients, and the public, asset owners now require asset managers to provide clear and comprehensive reports on environmental, social, and governance (ESG)-related activities.

Cerulli’s research finds more than half of institutional investors (58%) require or plan to require asset managers to provide portfolio-level exposure to financially material ESG risks, along with impact and thematic reporting. Furthermore, 23% of asset owners require their asset managers to report on ESG-related engagement activities—a similar proportion (22%) will implement this requirement within the next two years.

“This demand for transparency reflects the broader push for responsible and accountable business practices across industries,” says Gloria Pais, analyst. “Institutional investors want to ensure ESG considerations are not just a passing trend, but a fundamental part of the investment process. As such, asset managers must step up their reporting efforts to meet the expectations of asset owners and remain competitive in the evolving market,” she adds.

Achieving this level of transparency is not without its challenges. One of the biggest obstacles is the lack of standardized reporting guidelines for ESG metrics. Many asset owners struggle to define ESG risk and impact consistently across different sectors and industries. This lack of consistency makes it difficult for asset owners to compare performance across their portfolios and make informed decisions.

The industry's efforts to standardize terminology and measurement frameworks for ESG reporting are ongoing, but significant hurdles remain. More than one-third of asset owners (38%) cite the difficulty of defining ESG boundaries as a key challenge, particularly when differentiating between ESG and impact investing. Asset owners face the daunting task of aligning their investment decisions with the broader ESG framework without consistent reporting standards.

As asset owners demand greater transparency and ESG accountability, those asset managers committed to helping their clients navigate responsible investing programs should invest in robust reporting systems that meet these expectations.

“Comprehensive, standardized reports on ESG risks and impacts can help asset managers demonstrate their commitment to responsible investing and attract more institutional clients,” says Pais. “Furthermore, asset managers at the crossroads of evolving market demands should focus on integrating ESG considerations into their investment processes. These steps will help asset managers remain competitive and align with the values of their institutional clients,” she concludes.