Schroders survey reveals sustainable investment activity is highest among European investors. Kim Kaveh explores the research.
Sustainable investing has been a growing trend in the institutional market. Indeed this can be seen from Schroders' analysis of 250 European institutional investors, 60% of which identified as having increased their sustainable investment activity over the last five years.
The Institutional Investor Study 2018 - which was conducted to analyse their attitudes toward sustainable investments in June - further showed just over a quarter of respondents said their sustainable investment activity remained unchanged.
Meanwhile, 3% said it decreased and 11% said they did not invest in sustainable investment funds. No respondents said they used to invest in sustainable investments but do not anymore.
This is not a drastic change from findings in its 2017 analysis, which also showed 60% said their sustainable investing activity increased over the last five years; 28% said it remained unchanged; 1% said it has decreased; 1% said they used to invest in sustainable investments but do not anymore, and 10% said they do not invest in any sustainable funds.
Europe had the highest percentage of institutional investors that claimed to invest sustainably. In Asia, this was the case for 33% of pundits, 40% in North America, and 44% in Latin America.
Some 13% of total respondents in Schroders' survey were UK based. Of European pundits, 11% were corporate pension plans, and 30% were public or government pension plans which manage approximately $24trn (£18.2trn) in assets. Other institutions included foundations, endowments and sovereign wealth funds.
There were 650 institutional respondents in total. Some 175 in North America, 250 in Europe, 175 in Asia and 50 in Latin America. Respondents were sourced from 15 different countries.
The same study found that 83% of institutional investors in Europe believed sustainable investing is due to become more important over the next five years. This was an increase of 9% from its 2017 data.
Europe had the highest percentage of respondents in this respect. For example - of the North American respondents - 69% said sustainability is due to become more important in the next five years. This compared with 72% of Latin American pundits, and 68% respondents from Asia.
The investors were also asked about ways to increase investment in sustainability. Some 30% of European respondents said there should be data/evidence that shows investing sustainably delivers better returns. Over a quarter (27%) said there should be greater transparency by companies on both financial and non-financial performance reporting, and 14% there should be better environmental and social governance benchmarks. Some 12% said there should be more sustainable investment options, and just over one in 10 respondents said there should be greater support from senior leadership.
Across the board, the responses did not vary drastically among those from other countries in this respect. The largest disparity with European respondents was present among the 49% North American pundits that said data and evidence that shows investing sustainably delivers better returns would increase investment sustainability - a 19% disparity with European pundits.
The same study found that among European investors, just over a quarter said they find investing sustainably very challenging; 56% said it is somewhat challenging, while 18% said it is not challenging.
The figures were similar to last year's findings, which showed that 27% found it very challenging; 51% found is somewhat challenging, and over a fifth (22%) did not find it challenging.
When respondents were asked to explain their answers, over half (53%) of European pundits noted that one reason was due to performance concerns. Some 50% said it was down to lack of transparency and reported data; a third said difficulty measuring and managing risk; 28%, cost; 17% said their investment committee is not comfortable making sustainable investments; 16% said they do not believe in sustainable investing; 12% said they do not consider there to be any challenges to investing in sustainable investments, and just 3% said ‘other'.
The percentages here again did not vary drastically compared to last year, with the largest gap being among those who said they do not consider there to be any challenges to investing in sustainable investments. Last year, no European respondents selected this option.
Commenting on the findings, Schroders global head of stewardship Jessica Ground said:
"European institutional investors are often cited as being ahead of the curve when it comes to embracing sustainable investing. Today's survey further reinforces this point."
She further noted, however, that there remains a gulf between institutional investors' sustainable investment aspirations and the reality of how they prioritise these factors in their investment decision-making.
"Investors clearly recognise that investing sustainably is going to be more and more important going forward, but this approach is yet to sit at the heart of their investment process.
"This study demonstrates that investors who prioritise investing sustainably tend to have longer term investment horizons and greater confidence about achieving their return targets."
Empowering investors to think longer-term and avoid making short-term, knee-jerk investment decisions has also been a growing focus of policymakers globally, Ground added.
"Over time, this study highlights that sustainability is going to increasingly sit alongside institutional investors' more long-standing investment priorities, although there still remain barriers to overcome to achieve this in the near term."
Government promises to unleash net-zero investment blitz with '10 Point Plan' for 'Green Industrial Revolution'
Carbon capture, hydrogen, nuclear, electric vehicles (EVs) and renewables all set to benefit from £12bn government stimulus plan, but critics warn funding falls well short of the level required to trigger a green recovery.
Claudia Chapman sets out why schemes should look at expand their stewardship reporting and learn from best practice.
In this live blog, Professional Pensions' sister title Investment Week collates all the breaking market news, analysis and opinion on equity, bond and currency movements as well as the impact of trade wars, tightening monetary policy and the Brexit negotiations....
PensionBee is planning to roll out its fossil fuel-free fund by the end of this year after receiving £31m in fund commitments from customers in under a week.
Brunel Pension Partnership has launched two investment vehicles to target infrastructure assets that meet Paris Agreement objectives for its partner funds.