The shift from passive to active approaches in ESG investing is gaining momentum, driven by institutional investors’ growing awareness of ESG issues and increasing scrutiny from customers and regulators, rising reputational and greenwashing risks.
Passive vs. active mechanisms
This shift toward active approaches is driven by the growing recognition that ESG is a core part of investment missions, and investors seek to maximise positive and minimise negative impacts on society and environment. The institutional ESG landscape is clearly moving toward integration, not exclusivity. While passive ESG will remain the backbone of compliance‑driven allocations because of its scalability and cost‑effectiveness, the trend toward active stewardship, scenario‑based risk assessment, and impact‑focused capital deployment is gaining momentum. The journey from passive (exclusion lists, negative screening, index approaches….) to active approach requires investors to reassess their ESG strategies and work as partners with the companies and lead to more transparency and accountability.
Leading investors are moving from passive compliance to active influence – turning ESG from a reporting exercise into a driver of transformation
observes Laura Vitagliano, Head of sustainable finance, strategy client engagement at BNP Paribas’ Securities Services business.
Our latest ESG Survey reveals this trend is mainstream with 85% of respondents now integrating sustainability into investment decisions, 59% using ESG thematic strategies and the rise of active ownership, and 47% expecting to employ active ownership to achieve their ESG goals.
she adds.
Key drivers shaping the next few years
The regulatory landscape (e.g. EU’s “Corporate Sustainability Reporting Directive” and revised SFDR rules), will be pushing institutional investors to demonstrate not just “what” they hold but “how” they influence portfolio companies.
ESG data should continue to mature, providing more granular and real‑time metrics (scope‑3 emissions, employee turnover, board diversity), thus enabling asset managers to generate differentiated insights.
The growing demand for sustainable investment and measurable impact is another aspect fostering active strategies. For instance, pension beneficiaries and younger investors increasingly ask for concrete sustainability outcomes, favouring strategies that can report on KPIs like renewable‑energy capacity added or carbon intensity reduced.
Influence companies to drive positive change
Active ownership and stewardship are becoming increasingly important, with investors engaging with companies to influence their ESG practices and policies, driving positive societal and environmental outcomes.
Active ownership is a strong indicator of this direction of travel. By channelling their funds, institutional investors can effectively shape the behaviour of investee companies and address potential ESG risks. This can be particularly true for Private Capital Managers, who are increasingly active in real assets and infrastructure, where tangible impact is possible. They typically hold large, concentrated stakes in a relatively small number of companies. This ownership structure gives managers a seat at the board and the ability to influence strategy, governance and operating models far more directly than minority public‑market investors. Private‑capital managers sit at a pivotal nexus between capital and corporate action.
Their concentrated ownership, long‑term investment horizon, and fiduciary duty give them unique authority and responsibility to steer portfolio companies toward stronger environmental performance, social responsibility, and robust governance.
Laura notices.
Influence and engagement are key components of active ownership, enabling investors to work as partners with companies to drive sustainable change. By closely engaging with companies, institutional investors can promote transparency, accountability and ultimately foster sustainable change.
How we can help
We can help investors comply with their principles and align with their commitments, including ESG, through our proxy‑voting services. This solution keeps investors aware of upcoming shareholder meetings for the securities they hold and enables them to cast their votes—such as on ESG‑related proposals—so they can fully exercise their shareholder rights.
The result is concrete value creation for investors and asset managers. Votes that endorse climate-related issues, board‑diversity quotas or anti‑corruption policies push issuers toward better risk management, lower carbon intensity and stronger governance, which in turn reduces litigation or regulatory penalties and accelerate transition. Conversely, votes against detrimental proposals preserve shareholder rights and encourage corrective dialogue
Laura notes.
Proxy voting paired with other ESG solutions, like contractual investment compliance or sustainable securities lending, therefore lowers risk, improves sustainability performance, and ultimately enhances long‑term returns while delivering the transparent data that investors and regulators now demand.
Conclusion
The role of institutional investors is crucial in driving sustainability, and their influence can have a profound impact on the companies they invest in. ESG issues are an integral part of fiduciary duty to clients. As they navigate the complex landscape of ESG, they must prioritise collaboration, data-driven decision-making, and active ownership to achieve their sustainability goals. The shift from passive to active approaches in ESG is indeed a significant step towards creating a more sustainable and responsible investment industry, and institutional investors are at the forefront of this movement.