The majority of asset owners surveyed in a recent report by consultancy bfinance believe all ESG-related charges should be included in the management fee, and ESG resourcing should not affect a strategy’s price.
The report – Investment management fees: fairness revisited — surveyed 225 asset owners across 32 countries representing more than $4trn in assets, 43% of which are pension funds; and 434 asset managers across 31 countries representing over $50trn in assets under management.
It showed that 89% of asset managers surveyed by bfinance have “increased ESG-related spending materially relative to other costs” over the past three years.
The report pointed out that asset managers must navigate available paths as costs increase. These may include absorbing additional expenses at firm level, 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 the management fee and/or via ad hoc charges.
More than two thirds of asset owners surveyed said that strategies with “higher ESG resourcing requirements” should generally be “delivered at the same price as strategies with lower ESG resourcing requirements”. However, asset managers were significantly less likely to agree with this statement – 48% agreed, and only 10% strongly agreed.
The views varied across asset classes with 75% of fixed income managers agreeing with the statement versus 32% of real asset managers.
There were also geographical distinctions: Europe-domiciled managers were significantly more likely than US counterparts to agree that strategies with higher ESG resourcing should be more expensive (46% for US, 79% for France, and 72% for Germany).
There was also a question raised on whether all ESG-related costs should be included in the management fee or whether separate charges are appropriate, with answers varying between asset owners and asset managers.
The view from asset managers varied across asset classes – 82% of respondents from firms that only manage public market assets said that all charges should be in the management fee, but 49% of managers who only operate in private markets agreed with that statement.
Managers that specialise in real assets were most likely to endorse separate charges.
Investors with experience in ESG strategies, which represented more than 90% of those surveyed, were also asked to comment on whether strategies with higher resourcing requirements are actually provided at the same price, in their view, as comparable strategies with lower resourcing requirements. With just 51% of asset managers agreeing with that statement, bfinance said it shows a gap between investors’ practical experiences and perceptions of what is appropriate.
Bfinance added that there is a challenge of transparency, which means it can be hard for investors to assess what they’re paying for and how that compares to the competition.
Only 8% of relevant investors “strongly agree” that they’re “satisfied with the level of transparency that asset managers provide on ESG-related costs,” while 34% “somewhat agree”.
The challenge of ESG cost transparency should be viewed in the context of wider difficulties relating to the transparency and comparability of costs, bfinance said.
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