According to a report by bfinance, titled Investment Management Fees: Fairness Revisited, which surveyed 659 senior asset managers and owners, it found 89 per cent of asset managers said their ESG spending has “increased materially” relative to overall spending over the last three years.
A further 81 per cent said they expect it to increase materially again over the next one to two years.
“Climate investing, impact analysis, and more complex reporting – to name a few – can involve significant expense and, it should be noted, are more necessary to some ESG-orientated clients than others.”
But when it comes to how this affects the end investor, nearly 70 per cent still want strategies to be offered “at a comparable price” to those products with lower spending. The main area where investors say they do feel higher costs are appropriate are impact investing (47 per cent) and decarbonisation (38 per cent).
Unsurprisingly, asset managers disagreed on this point, with the number falling to 58 per cent who agree with that statement.
It also varied geographically, with more than 70 per cent of asset managers in Europe likely to agree strategies with higher ESG resourcing requirements should be more expensive compared to less than half in the US.
“Interestingly, managers with a high proportion of ESG product (>75 per cent, branded as such or otherwise) were only marginally more likely than their peers with a low proportion of ESG product (<25 per cent) to agree that strategies requiring higher ESG resourcing should be ‘the same price’ as comparable strategies with lower ESG resourcing.”
Bfinance also highlighted the challenge of transparency when it comes to pricing as it can be difficult for investors to ascertain their fees and how they compare to other products or providers. Only 8 per cent of investors said they are satisfied with the level of transparency provided by asset managers on ESG costs.
As for what asset managers can do going forward, the firm said asset managers should consider how they can present costs in a different way.
“Asset managers must navigate available paths as costs increase. These may include absorbing the additional expenses at firm level (reducing profit margins or finding other efficiencies to compensate), passing them to the broad client base, or sharing them over strategy-specific client bases that make heavier use of relevant resources as part of management fees and/or via ad hoc charges.”
