Institutional Asset Owners Turn to Third Parties for ESG Support

March 10, 2022 — Boston

Investment consultants and OCIOs’ ESG capabilities are attracting clients

A lack of in-house environmental, social, and governance (ESG) expertise is prompting institutional asset owners to seek support from investment consultants and outsourced chief investment officers (OCIOs), according to the latest Cerulli Edge—U.S. Institutional Edition.

Given that ESG is a relatively new and complex aspect of investment management, asset owners and their investment teams may not be in a position to execute on an investment portfolio that fully integrates their ESG policy. While many in-house investment teams and investment committees are making efforts to enhance their capabilities, most still need additional help. Investment consultants, with their decades of manager research and due diligence experience, can provide a level of expertise and advice that many asset owners cannot implement on their own.

As a result, Cerulli has observed an increase in consultant engagements for ESG policy setting and portfolio allocation. “Given their strong, deep bench of investment professionals that specialize in ESG investing, OCIOs can offer highly customized services to their clients and may even support aspects of an asset owner’s ESG strategy, including shareholder advocacy and voting proxies in line with their client’s ESG goals,” states Laura Levesque, associate director.

Based on the highly specialized knowledge required to fully implement ESG into an asset owner’s investment portfolio, Cerulli expects to see the demand for investment consultant and OCIO support for ESG to continue to grow. “The broad nature of what ESG encompasses, multiple approaches to ESG integration, and the lack of an industry reporting standards make the expertise of these third parties far more valuable than they may be for more traditional investment consulting services or outsourcing portfolio management,” adds Levesque. “Clients that would not have considered using these services for other aspects of portfolio management are more likely to do so because of the intricate nature of ESG and the relatively low expertise of experienced portfolio managers in the topic.”

As asset owners look to implement ESG policies, they are likely to run into many challenges in the process. “Defining their view on ESG and integrating into their investment policy statement, including the asset allocation policy, conducting adequate research on ESG topics and data, and having specific in-house resources with the capabilities to identify ESG opportunities are among the top challenges that most institutional asset owners face,” says Levesque. As a result, Cerulli sees additional opportunities for investment consultants and OCIO providers to expand their client base. For investment consultants and OCIO firms seeking to grow their institutional business, clearly communicating capabilities in the ESG space will be increasingly important.

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Note to editors

These findings and more are from The Cerulli Edge—U.S. Institutional Edition, 1Q 2022 Issue.

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