Environmental, social and governance (ESG) integration is at peak levels among global institutional investors, while around 30% have also placed greater emphasis on sustainability considerations due to Covid-19, according to the 2021 RBC Global Asset Management (RBC GAM) Responsible Investment Survey.
The report found that the latter cohort of investors are also the most vigorous supporters of ESG as an enabler of investment performance. Roughly 97% believe ESG integrated portfolios are likely to perform as well or better than non-ESG integrated portfolios, which is significantly higher than the 83% of the overall global respondents who said the same.
Among the newly committed group, 80% think ESG integration helps generate long-term sustainable alpha versus 51% of the total respondents.
In addition, 88% note that ESG integration helps mitigate risk compared to 61% of the total respondents.
The company surveyed more than 800 investment-sector participants from around the world, with 45% representing organisations with $1 bn or more in assets.
While the number of investors who use ESG appears to have plateaued over the past several years, there remains a geographic divide when it comes to adopting ESG principles.
European investors are far out in front for the fifth straight year, with 96% of the region’s respondents using ESG in their investment approach.
By contrast, the figure is just 64% in the US where investors remain the most sceptical. Although a strong majority of Canadian investors adopt ESG principles, this year saw a slight decrease to 81% from 89% last year.
Asian investors, on the other hand, continue to increase ESG adoption, with 76% of respondents using ESG principles this year, compared with 72% in 2020.
Drilling down, European investors are paying closest attention to climate change with 80% addressing the risks in their investment policy – a 15 percentage point jump from last year, and a significant divergence from other regions. The figure was 32% in Asia, 31% in Canada and 20% in the US.
The report said the difference could be attributed to the European regulatory environment, as 45% of European investors point to government legislation as a top reason for incorporating ESG in their investment portfolios, compared to just 12% of global respondents.
In the past few years, the European Union has introduced a host of regulations to standardise the approach to ESG disclosure. These include the EU Non-Financial Reporting Directive, the EU Sustainable Finance Disclosure Regulation (SFDR) and EU Taxonomy.
Diversity on boards also shows a split among respondents. Less than half of global investors or 41% said corporate boards should adopt visible minority diversity targets, almost unchanged from last year.
Conversely, investors who said these targets should not be adopted by boards jumped to 35% this year, versus 28% last year.
A similar trend was also apparent for gender diversity targets on boards – 47% globally said that boards should adopt gender diversity targets, which was consistent with last year, while those opposed rose to 35%, up from 26% last year. Europe and Canada had the strongest support for targets, at 57% and 54%, respectively.
On fossil fuels, engagement continues to outpace divestment. By a four-to-one margin, global investors said that engagement (45%) is more effective than divestment (10%), a tick up from 40% in 2020 and 39% in the year prior.
Over the last three years, there has been no growing support for divestment amongst institutional investors, indicating a clear preference for engaging in dialogue with companies.
“The findings suggest that for the most ESG committed investors, the COVID-19 pandemic has highlighted the critical importance of hardwiring environmental sustainability and social equality into their investment process,” said My-Linh Ngo, Head of ESG Investment and Portfolio Manager at BlueBay Asset Management. She added, “The pandemic has impacted governments, companies and individuals in unprecedented ways, and it will continue to reshape how society and the economy operates going forward. We think this presents a unique opportunity for investors to review and recalibrate how they incorporate ESG considerations into their investment practices.”
Melanie Adams, Vice President and Head of Corporate Governance and Responsible Investment at RBC Global Asset Management, notes, “Over the past five years, our data has clearly demonstrated that institutional investors are convinced of the merits of ESG adoption, and are committed to incorporating ESG in their investment approach to help mitigate risk and generate long-term sustainable alpha,
She said, “In a year where ESG risks such as COVID-19, high profile cyber breaches and climate-driven weather events dominated headlines, it will be interesting to see how perceptions toward ESG will continue to evolve.”
©Markets Media Europe 2021
[divider_to_top]
