The number of institutional investors using thematic sustainable investment strategies grew by about 20 per cent between 2016 and 2020, according to a new study by the U.K.-based data and analytics firm Coalition Greenwood.
Sustainable thematic investment strategies are ones that target areas of investment where social or environmental needs create business opportunities. According to the report, about 72 per cent of institutional investors surveyed said they’d made allocations to sustainable thematic investment strategies at some point. In 2016, a similar report found that just 52 per cent of asset owners had made such allocations.
The study, which was based on a survey and online interviews with corporate pensions, public pensions, endowments and foundations based in North America, Europe and the U.K., also found 67 per cent of respondents had made thematic sustainable investments within the past three years. In addition, the total amount allocated to these investments had grown by 135 per cent in the past five years.
It also found a degree of regional variation in investors interest in these allocations. About 85 per cent of European and U.K. respondents had already made allocations to thematic sustainable investments compared to about 67 per cent of North American respondents.
According to the study’s author, David Walmsley, head of client relations at Coalition Greenwood, the trend of using portfolios to have a positive impact on the environment and in society without impeding returns on investments is growing in popularity among investment professionals. In a press release, he pointed out that many institutional investors are favouring sustainable thematic investment strategies over other environmental, social and governance integration strategies.
“Institutions are increasing allocations to sustainable thematic investment strategies because many asset owners believe they can generate greater impact than ESG integration approaches while acting as a source of alpha by identifying investment trends earlier than other approaches,” he said.
While other approaches may be less popular with institutional investors, the report found the number of investors that reported employing sustainability criteria in all of their assets has increased significantly in the past five years. According to the 2021 study, about 47 per cent of institutional investors measured all investment decisions against sustainability criteria, up from just 13 per cent in the 2016 study.