While investing sustainably is still a relatively minor factor in institutional investment decisions, global investors expect it to continue to grow in importance, according to new research by Schroders.
“Investors clearly recognize 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,” said Jessica Ground, global head of stewardship at Schroders, in a press release.
The research, which surveyed 650 global institutional investors with US$24 trillion in assets, found 83 per cent of European investors expect sustainability will become increasingly important, compared to 69 per cent of North American investors. As well, just 40 per cent of North American respondents said they’ve increased their sustainable investments in the last five years, down from 48 per cent the year before.
More than three-quarters (77 per cent) of North American investors said it’s challenging to make sustainable investments, citing performance concerns and lack of transparency and available data as concerns. Half (49 per cent) of these respondents said data or evidence that shows sustainable investing results in better returns would help them make more of these investments.
“There remains a gulf between institutional investors’ sustainable investment aspirations and the reality of how they prioritize these factors in their investment decision-making,” said Ground.
Among all respondents, 32 per cent said sustainability has little to no influence on their investment strategy. Looking more closely at investors with a long-term focus, 32 per cent of those holding investments for a minimum of five years said sustainability was a significant influence, while 23 per cent of those with holding periods between three and five years said the same.
“Empowering investors to think longer term and avoid making short-term, knee-jerk investment decisions has also been a growing focus of policymakers globally,” said Ground.
Notably, 59 per cent of investors that focus on sustainability are confident they’ll be able to reach their return expectations. Only 37 per cent of those that don’t prioritize investing sustainably said the same. Respondents that focus on sustainability also emphasized generating risk-adjusted returns, at 66 per cent, while just 53 per cent of those less focused on sustainability said the same.
Corporate strategy, climate change and accounting quality were identified as the most important issues investors should engage companies on.