Two-thirds of institutional investors across the globe use environmental, social and governance (ESG) principles as part of their investment approach, and 25% expect to increase their allocation to managers with ESG-based investment strategies within one year.
This is according to a global survey by RBC Global Asset Management (RBC GAM).
The study found 85% investors in Europe, 73% in Canada, and 49% in the US incorporating ESG analysis. Key reasons cited by investors for incorporating the principles were clear value proposition, preference for multiple analytical factors in the investment process, and requirement to comply with a clear board-level mandate or investment guidelines.
For those who have failed to adopt ESG considerations, key reasons cited were lack of requirements to do so from their boards of directors, unclear value proposition, and strict preference for financial analysis.
A total of 32% of the respondents said they do not consider ESG factors to be a way to mitigate risk in their portfolios, while 20% are unsure. Nearly half (46%) of the investors said they do not consider ESG factors to be an alpha source, while 30% are unsure.
The report noted most of the investors using ESG principles were found to be dissatisfied with the disclosure of ESG metrics offered by corporations. In the US and Canada, investors want shareholder proposals to do the work of improving disclosure, while in Europe investors want government regulators to require the same.
Also, most of the respondents surveyed were found to give importance to gender diversity on corporate boards. The view is held by 71% in the US, 80% in Canada and 68% in Europe.
RBC GAM vice-president and head of corporate governance and responsible investment, Judy Cotte, said: “Globally, we are seeing a clear trend toward greater awareness, interest and adoption of ESG analysis and responsible investing. This survey reveals that many institutional investors are actively discussing these issues within their organisations and with consultants and stakeholders.
“And while some institutions are moving at a cautious pace, others are moving rapidly to adopt an ESG-based investment approach.”