After a turbulent couple of years where ESG investing faced pushback and political headwinds, new research from Lonsec suggests fund managers are regaining their ESG footing. Encouraging signs are emerging across investment strategies, transparency, and stewardship but the journey toward full ESG maturity is far from over.

Tony Adams, Head of Sustainable Investment Research at Lonsec Research and Ratings, has welcomed the progress made by fund managers, citing improvements in ESG strategy integration, disclosure practices, and alignment with global stewardship frameworks. However, Adams also cautioned that many managers continue to treat ESG as a defensive risk management tool rather than as a forward-looking driver of investment opportunity and differentiation.

The Good News: ESG Reporting and Stewardship on the Rise

One of the clearest indicators of momentum is the improved internal ESG scoring of fund managers, based on Lonsec’s proprietary metrics. These scores assess not only the clarity and coherence of ESG policies but also their practical application especially when it comes to active ownership, engagement outcomes, and proxy voting. The widespread adoption of international frameworks such as the UK Stewardship Code has helped raise the bar. Rather than offering vague ESG commitments, managers are increasingly presenting detailed narratives that explain how ESG considerations are embedded into investment decisions. Quarterly stewardship reports once a rarity are now standard practice among leading firms, helping clients track progress in near real-time.

Adams notes that these detailed, outcome-focused reports are shifting the conversation: “Rather than describing ESG in abstract terms, managers now share concrete examples of how corporate behaviour is being influenced be it through proxy voting, shareholder resolutions, or direct engagement .” This greater transparency is not just a box-ticking exercise it helps investors better understand whether their capital is being used to effect real-world change.

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The Blind Spots: Proxy Voting and Policy Dilution

Despite these gains, Lonsec’s findings highlight several ongoing issues chief among them, proxy voting transparency and the declining substance of ESG policy frameworks. While many managers have improved vote disclosure by publishing downloadable dashboards, the rationale behind voting decisions often remains thin. In cases where decisions rely heavily on third-party proxy advisors, the result can be generic and disconnected from ESG-specific concerns. This undermines trust, particularly in high-stakes or controversial votes.

Adams warned that this could lead to a credibility gap: “Investors are now scrutinising not just whether firms vote, but how and why they vote. Without clear, issue-specific criteria and robust rationales, even well-intentioned stewardship efforts risk being seen as performative.”

Simultaneously, the overall quality of ESG policy frameworks appears to be weakening. While board-level endorsements and headline commitments remain, detailed execution strategies such as integration via proprietary ESG scores, materiality mapping, or performance-linked incentives are becoming less common. ESG is increasingly framed as a compliance or reputational risk issue, rather than as a proactive value driver.

From Integration to Exclusion and the Risk of Disconnect

Another concerning trend is the over-reliance on exclusionary screening. While negative screens (e.g., avoiding tobacco, weapons, or fossil fuels) offer investors clarity on what isn’t being funded, they often mask a lack of deeper ESG integration into portfolio construction and engagement strategy. This “checkbox” approach, Adams argues, may give the appearance of ESG alignment without embedding it in the investment thesis. “A growing use of exclusion lists risks creating a disconnect between stated ESG intentions and the investment process itself.”

ESG Maturity Is a Differentiator But Still Uneven

Despite these shortcomings, Lonsec’s overall assessment is that ESG maturity is improving particularly among firms that see ESG not just as a regulatory requirement but as a key dimension of investment quality. Adams emphasized that robust ESG policies, especially those tied to real performance metrics and transparent reporting, can help investors identify asset managers who are better equipped to manage long-term risks and opportunities.

“Clearer ESG communication isn’t just about accountability it also signals strategic competence. Managers who anticipate regulatory, reputational, or climate-related shifts are more likely to show resilience in performance and stronger alignment with investor values.”

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The Stakes Are High: ESG Is No Longer Optional

In an increasingly saturated asset management market, the ability to communicate and demonstrate meaningful ESG practices is fast becoming a competitive advantage. High-quality ESG integration, backed by evidence-based reporting and thoughtful engagement strategies, can help firms stand out and reduce exposure to accusations of greenwashing. For investors, the call to action is clear. They must move beyond surface-level ESG claims and interrogate the details: How is ESG actually implemented across asset classes? Are stewardship actions backed by clear rationale and measurable outcomes? Is ESG viewed only through a risk lens, or is it embedded as a core driver of value?

As Adams put it, “Ultimately, meaningful ESG practices are not just about ticking a box or satisfying regulation. They reflect a firm’s investment philosophy, its understanding of systemic risk, and its long-term integrity.”

With ESG maturity now a signal of institutional quality and strategic foresight, the firms that lead will be those who can bridge the gap turning policy into performance, and ambition into action.

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