Benefits of integrating ESG include long-term alpha, minimized risk: survey

As Canadian institutional investors increasingly integrate environmental, social and governance factors into their portfolios, the majority (97.5 per cent) said they believe these portfolios are likely to perform as well or better than non-ESG integrated portfolios, according to a new survey by RBC Global Asset Management Inc.

The majority (70 per cent) of survey respondents said they believe adopting ESG factors can help generate long-term sustainable alpha, while 87 per cent of Canadian respondents believe that an ESG-integrated portfolio can also help minimize risk.

The survey also found that the ongoing coronavirus pandemic is influencing investors’ views about ESG, with more than 28 per cent of respondents saying it’s made them place more importance on ESG considerations. In addition, 53 per cent said they’re looking for companies to disclose more details about worker safety, employee health benefits, workplace culture and other social factors due to the pandemic.

Read: A look at the different paths to ESG integration

Among respondents that said they’re more closely focused on specific ESG factors due to the pandemic, the top three cited were supply chain risk (43 per cent), climate risk (37 per cent) and workplace culture (31 per cent).

In addition, during a time with renewed focus on racial justice issues, more respondents favoured board minority diversity targets (44 per cent) than opposed them (28 per cent). Similarly, more respondents favoured board gender diversity targets (49 per cent) than opposed them (26 per cent).

Across all respondents, more than 80 per cent said there aren’t sufficient climate-related investment products available. However, when looking at different climate-related strategies, they’re most interested in renewables (55 per cent), carbon neutral or low carbon strategies (54 per cent), transition strategies (48 per cent) and fossil fuel free strategies (36 per cent).

Read: Considerations for integrating ESG into fixed income

In another new survey, Russell Investments found 78 per cent of global asset managers now incorporate qualitative or quantitative ESG factor assessments into their investment processes, up from 73 per cent in 2019. Some 87 per cent of Canadian asset managers said ESG considerations are regularly embedded into their investment processes, an increase of 15 percentage points since last year.

And while the survey found 82 per cent of asset managers said they consider governance to be the most critical ESG factor, there was a four percentage point increase (13 per cent, up from nine per cent in 2019) in the number of managers identifying environmental considerations as the factor that most impacts their investment decisions.