Challenges regarding performance concerns and a lack of data remain but sustainable investing continues to gain traction globally, a study by British asset manager Schroders has found.
It polled 650 global institutional investors, including pension funds, insurance companies, sovereign wealth funds, endowments and foundations with $25.4trn (€22.8trn) in assets under management.
Three-quarter of them expect the role of sustainability to become increasingly important in the next five years.
European investors are ahead of the pack with 84%, followed by North American investors with 70%, and Asia Pacific investors accounting for 67%, the study says.
Source: Schroders, Institutional Investor Study 2019, Sustainability
Meanwhile, performance concerns (48%) and a lack of transparency and reported data (40%) remain the biggest challenges for investors.
A staggering two-thirds (67%) of North American investors say they need evidence of better returns from sustainable investments. This compares to 45% of Asia-Pacific investors, 42% of European and 36% of Latin American investors answering likewise (see below chart).
Yet, overall, the lack of transparency and data is seen as less of a sustainability challenge this year, dropping to 40% from 48% in 2018.
Declining sceptics
The global sustainability shift is reflected in a decline of institutions stating they do not believe in sustainable investments.
Globally, these fell to 11% in 2019 from 20% in 2017; regionally, the biggest drop of sceptics was registered in Asia Pacific, falling to 10% in 2019 from 23% in 2017 and in Latin America to 12% in 2019 from 29% in 2017.
Climate change has become the most important area of engagement among investors globally, ahead of topics such as business corporate strategies, accounting quality, bribery and corruption, diversity and labour rights.
While European investors believe climate change is the most important stewardship issue (61%), Asia Pacific and North American investors highlight corporate strategy (62% and 59%) as their top priority.
Latin American investors place the least emphasis on climate change (30% in 2019 versus 44% in 2018 ).
Source: Schroders, Institutional Investor Study 2019, Sustainability
Sustainable strategies
Among asset classes, equities are deemed as most suitable for implementing sustainable investments. As many as 71% of global institutional investors say equities are most relevant, ahead of infrastructure (49%), credit (47%) and real estate (42%).
Integrating sustainability into the investment process is the most popular environmental, social and governance approach (64%). Negative screening follows with 53%, before positive screening (44%), and active company engagement and thematic investing (both 38%).
Jessica Ground, global head of stewardship at Schroders with €496.6bn of assets under management, commented: “These findings deliver perhaps some of the clearest evidence to date of how even the most sceptical of institutions are now recognising that investing sustainably can deliver better long-term outcomes.
“The study emphasises that this is only going to grow over the next five years with the likes of climate change now viewed by investors globally as the most important issue for stewardship engagement.”
