Two years ago, we launched our inaugural Environmental, Social and Governance (ESG) Survey to better understand our client’s approach to ESG considerations in their investment decision making. Since that time the focus on Sustainability and ESG has only accelerated and intensified as the world has grappled with a global pandemic, the growing effects of climate change and social and racial inequalities. We were eager to understand what shifts have occurred and how our industry is responding. To do so we undertook an in-depth survey of 180 real assets investors globally, responsible for over $US21 trillion of assets. These are the results.
ESG integration and sustainable investing have moved from the edges of the investment community into the mainstream.
Investors are broadly convinced that ESG factors can enhance returns and reduce risk. Around 74 per cent of respondents believe that a positive sustainability strategy improves financial returns, with most of the remainder seeing no material impact.
21% of respondents say that ESG factors govern investment decision-making – up from 10 per cent when we asked the question in 2019.
While climate change is the top-ranked ESG issue, most investors are yet to make their own commitments, and they lack the tools they need to address the problem.
Survey responses chime with market perception that the Americas and Asia lag Europe regarding ESG integration – but they suggest the gap is likely to close. For example, 81 per cent of respondents in the Americas expect to significantly increase allocations to investment strategies or managers that target specific ESG outcomes and about 74 per cent in ANZ, compared with 91 percent in EMEA.
As investors deepen their ESG integration, their objectives are beginning to change. Moving from a focus on process to a focus on outcomes, they want to be able to demonstrate that their investments can have real-world social and / or environmental outcomes. There has been a marked increase in analysis and disclosure of non-financial ESG outcomes over the previous two years, with 16 per cent of investors reporting significantly, and 49 per cent somewhat increased activity. This effort is expected to accelerate over the coming years.
Demand for ESG analysis, integration and investment products is set for continued strong growth even as the investor community continues to face challenges incorporating ESG factors into their investment decision making.