ESG-related client behaviors

Actions speak louder than words

Accomplish’s Behavioral Benchmark enables asset managers to measure, compare, and predict client behavior. Why? Because what humans do is a much more reliable indicator of demand than what they say.

Our research into ESG-related client behaviors was different. Whereas the benchmark measures known behaviors on an ongoing basis – like buying, staying, and buying more – the ESG research identified previously undocumented behaviors as a one-off piece of primary research.

The findings are important because they shed light on the nature of clients’ demand for ESG investment products and services and raise the potential for this to change.

Research methodology

In Q2 2022, we gathered objective observations from 41 asset management firms about the behaviors their institutional and intermediary prospects and clients from around the world displayed in relation to ESG.

To ensure we interpreted the data correctly, we collaborated with Harald Walkate who is a Senior Fellow at the University of Zurich’s Center for Sustainable Finance.

To explore the data further, we ran it through Walkate’s Today / Tomorrow Framework, which maps an organization’s focus on the topic of ESG.

Key findings: ESG -related client behaviors

We found 42 distinct ESG-related client behaviors across 9 categories, with clients displaying behaviors from multiple categories. As you can see below, asset managers reported some categories of behavior more often than others. Crucially, they reported that a client’s behavior differed depending on whether, in their opinion, the client had more or less experience of the discipline of ESG.

The 9 categories of ESG-related client behavior

When we examined the behaviors through the lens of Walkate’s Today / Tomorrow Framework, we found a contrast between those displayed by clients with less experience and those with more.

In general, ‘less experienced’ clients focused more on quantitative factors, with a bias towards closed questions and without an apparent direct link to a real-world objective. On Walkate’s model, they aligned with numbers, ideology, and ethics. In contrast, ‘more experienced’ clients appeared to adopt a more balanced position of also demonstrating demand for understanding through open questions and qualitative explanations of investment relevance. On the model, they also operated in areas associated with narratives, objectives, and evidence.

For example, a less experienced client might ask for engagement and voting volumes and statistics (behavior #5.6), whereas a more experienced one might also ask how you engaged a company, what you aimed to achieve and why, progress made, successes, failures, divestment assessments, and implications (#6.3).

Strategic implications for asset managers

If clients occupy different positions on Walkate’s model depending on the extent of their experience of ESG, then ESG-related client behaviors do not have to be static, but can and do evolve as they gain experience. This raises potential for a change in demand for ESG-related propositions. 

We hypothesize that the general direction of travel will be diagonal. We do not expect clients to depart the bottom-left quadrant as they gain experience. We consider it more likely, instead, that the size of their ‘footprints’ will grow as they extend up the diagonal to adopt a more balanced position.

This implies that firms will need skills and budget to serve the demand of greater volumes of experienced clients and the behaviors they display. Returning to the example of engagement and voting, providing standardized data (behavior #5.6) costs much less than the rich level of transparency that #6.3 calls for. Clients may want both.

Referring to Walkate’s use of his own model (above) to map different ESG disciplines, a change in demand up the diagonal also implies that firms’ product strategies may need to evolve as clients, in general, adopt a more balanced position.

What asset managers should do

We believe the findings of this research present strategic opportunities and threats for asset management firms, and we encourage them to perform a SWOT analysis against page 10 of the report.

Specifically, we recommend you analyze the behaviors of more experienced clients and the potential impact on your ESG products and services of a market in which they become more prevalent. For example:

  • Where are your firm’s strengths and weaknesses, and how significant are they?
  • Where are your gaps, and which ones are important to you?
  • Where will the capability come from to rectify any weaknesses and gaps – will you develop skills in-house, secure them through hiring or acquisition, or a mix of different approaches?
  •  Where will the budget come from – will clients pay more, or will this erode your profits?

Why should you act? Because actions speak louder than words: client behaviors indicate demand, so you should align your ESG investment proposition with the direction of travel.

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In-brief

ESG-related considerations have already changed the way asset owners behave towards asset managers. International frameworks are driving these behavioral changes, making them ‘benchmarkable’. Accomplish’s next project will identify current and future ESG-related client behaviors, and how asset managers are responding.

Asset owners’ new behaviors

In the year 2019 to 2020, the volume of climate-related disclosures by companies increased more than in any other, with 50% of firms making at least three recommended disclosures. Europe leads the way and, in particular, the materials, building, and insurance industries are forging ahead. (TCFD, 2021)

This growing supply of data is a significant development, but what effect has it had on the behavior of asset management clients?

In 2021, research by CREATE et al found that climate-related considerations have already changed the way asset owners behave towards asset managers. In particular, the chart below shows the new criteria that clients consider when selecting an investment manager. 

Manager selection criteria for climate change Reproduced with the permission of CREATE.

asset owners consideration

For example, the most important consideration is the track record on stewardship and proxy voting. This will result in a request for an asset manager’s proxy voting record, which is a specific, observable, and measurable behavior.

‘Benchmarkable’ behavioral changes

This case study is important because it indicates the influence of international frameworks like the TCFD (Task Force on Climate-Related Financial Disclosures) on the behaviors of producers and consumers of sustainability information.

Because a central framework is driving the changes in behavior, we believe they will display a material degree of standardisation. This means that not only will they be measurable – they will also be benchmarkable.

Stepping back from the environment, the broader framework of sustainable investing considers not just environmental factors in investment decisions but also ones that relate to society and governance – ESG.

This situation raises three questions for asset managers:

  • What is the full set of ESG-related client behaviors?
  • How are they and their peers responding?
  • If client behavior is evolving in response to ESG, what are the likely future behaviors and requests asset managers should plan for?

Research project: ESG-related client behaviors

Answering these questions is important because it will help asset managers serve the evolving demand for ESG information as efficiently as possible.

For these reasons, Accomplish’s latest research project will identify what clients are actually requesting from asset managers in relation to ESG, how firms are responding, and how their requests might change in the future. In particular, we are thrilled to have joined forces on this initiative with Harald Walkate, a Senior Fellow at the University of Zurich’s Center for Sustainable Finance & Private Wealth (CSP).

Accomplish’s research projects are its free gift to the investment industry. Contribute to the research and, in return, receive the findings and an invitation to the industry discussion of their implications. If you would like your firm to participate, book a 60-minute interview in either April, May, or June. Early take up has been strong and we expect anywhere up to 30 to 40 asset managers to participate. 

Adam Grainger

Adam Grainger

Behavioral analytics | Data science | Asset management

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