While 68 per cent of global institutional investors said they consider responsible investing to be important to their organization to some degree, 40 per cent said they’ve already developed a policy for making investment decisions and another 14 per cent said they’re in the process of doing so, according to a new survey by Aon.
Its survey of 223 global institutional investors found that, among those that have implemented a responsible investing effort, the most popular reasons are a belief that the incorporation of environmental, social and governance data resulted in better investment decisions (39 per cent), and a desire to impact certain global issues, such as carbon footprint, climate change and water issues (26 per cent).
“While responsible investing is still relatively nascent in many organizations and geographies, overall interest in these initiatives has skyrocketed over the past few years,” said Meredith Jones, partner and head of emerging manager research at Aon, in a press release. “We’ve gone from clients asking sporadically about responsible investing to full-scale development of policies, implementation of responsible investing initiatives and a veritable sea change in how investors and asset managers incorporate and evaluate responsible investing data into their investment strategies.”
While Aon expects to see interest in responsible investing continuing to grow, more will need to be done before there’s widespread global adoption, according to Jones, who cited issues such as further clarity around definitions, access to accurate data and measurement, concerns about performance and regulatory pressures.
In terms of how responsible investing could be more accessible, 53 per cent of institutional investors cited better or more consistent data on environmental, social and governance factors. Other factors cited included compelling research on return profiles (50 per cent), industry consensus on terms and definitions (49 per cent) and agreement on key environmental, social and governance factors (49 per cent).
The survey also found a geographic split when it came to attitudes around responsible investing, with more activity in the European Union than in the United States. Some 80 per cent of institutional investors in Britain said climate change is their major responsible investment-related concern, which ranks second (48 per cent) among investors in the United States. Instead, they ranked economic nationalism as their top concern, at 56 per cent. Three-quarters (67 per cent) of Canadian investors ranked climate change as their top concern.
In the United States, no investors said they’d withdraw from a fund manager that lacked a responsible investing policy, while 11 per cent of British investors and five per cent of Canadian investors said they would do so.
“RI is one of the most talked-about subjects among institutional investors in Canada, particularly endowments, foundations and others with a public interest mission, but we’re seeing more engagement among large corporate investors as well,” says Calum Mackenzie, a partner in Aon’s investment consulting business.
“Institutions are increasingly realizing the link between well-governed companies and better investment performance, and the spectrum of action ranges from increased monitoring of ESG to a more active approach to proxy voting and dedicated ESG-focused investment mandates.”
The Canadian institutional focus on responsible investing also extends to investment managers, Mackenzie notes. “Anecdotally, we see investment committees spending more time dedicated to ESG discussions, and they are questioning managers vigorously about their ESG policies. That speaks to how important the issue has become to institutions, and it’s one reason we now incorporate an ESG rating into our manager evaluation process.”
The survey also found respondents are expecting Europe to lead the responsible investing charge going forward. Interestingly, each region picked itself as the runner-up when it comes to responsible investing, with 24 per cent of Canadian respondents, 23 per cent of American participants and 33 per cent of British respondents placing themselves in the second spot.
When it comes to the most common way of implementing responsible investing, 47 per cent of survey respondents cited the integration of environmental, social and governance factors into investment strategies, with negative screening (also known as socially responsible investing) in a distant second at 24 per cent.
Investors in Europe are the most likely (35 per cent) to be active owners of shareholder engagement. In Britain, 20 per cent of investors said they use shareholder engagement to express their responsible investing policy, while almost 18 per cent of Canadian investors said they do so.