While 72 per cent of institutional investors are currently integrating environmental, social and governance factors into their investment strategies, 29 per cent are placing greater emphasis on ESG considerations as a result of the coronavirus pandemic, according to a new survey by RBC Global Asset Management.
The survey, which polled 800 global institutional investors, found 83 per cent of respondents said ESG-integrated portfolios are likely to perform as well or better than non-ESG integrated portfolios, a number that increased to 92 per cent among Canadian respondents and 97 per cent among institutional investors that prioritized ESG factors during the pandemic. Although 81 per cent of Canadian investors said they’ve adopted ESG principles, it was a slight decrease from 89 per cent in 2020.
Among investors that strengthened their ESG commitments, 80 per cent said ESG integration helps generate long-term sustainable alpha and 88 per cent said it helps mitigate risk, compared to 51 per cent and 61 per cent, respectively, among the total group. In addition, 70 per cent of respondents in this group said board gender diversity targets should be adopted, versus 47 per cent of the total group.
When respondents were asked to rank their top ESG concerns, anti-corruption (58 per cent) ranked first globally for a second consecutive year, followed by cybersecurity (56 per cent) and climate change (55 per cent). Among Canadian respondents, these concerns were ranked at 68 per cent, 62 per cent and 68 per cent, respectively.
More than half (57 per cent) of respondents said fiduciary duty is their top reason for embracing ESG factors, followed by the prospect of lower risk and increased returns (52 per cent). Among Canadian investors, these numbers increased to 73 per cent and 62 per cent, respectively. When asked about their approach to fossil fuels, 53 per cent of Canadian institutional investors said engagement is more effective than divestment, compared to 45 per cent of the overall group.
Half (51 per cent) of Canadian respondents said their ESG portfolios are 100 per cent actively managed — compared to 41 per cent in Europe, 24 per cent in the U.S. and 14 per cent in Asia. More than three-quarters (79 per cent) of all respondents said they use external asset managers that incorporate ESG factors in investment management. Among these respondents, 62 per cent use this criteria for some mandates while just 17 per cent it for all mandates.
Slightly more than two-fifths (41 per cent) of all respondents said there aren’t enough fixed income products that incorporate ESG factors, while 45 per cent said they aren’t sure. A third (33 per cent) said ESG issues are equally material to sovereign and corporate fixed income, while 28 per cent said ESG issues are more material for corporates. The use of ESG principles in equities was highest (89 per cent) in Canada.
Slightly fewer than half (46 per cent) of all respondents and 61 per cent of Canadian institutional investors said the pandemic made them think that companies should disclose more details about worker safety, employee health benefits, workplace culture and other social factors.
And 41 per cent of all respondents said corporate boards should adopt visible minority diversity targets. While 47 per cent said boards should adopt gender diversity targets, 35 per cent said they’re opposed, up from 26 per cent last year. Support for gender diversity targets was strongest in Europe (57 per cent) and Canada (54 per cent).