Study

About this study

This study was commissioned by Schroders1 to study institutional investors across North America, Europe, Latin America and Asia to analyse their attitudes towards sustainable investments, investment objectives and risk.

Respondents represent a variety of institutions, including pension funds, foundations, endowments and sovereign wealth funds.

The research was carried out via an extensive global survey during June 2017. The 500 institutional respondents were split as follows: 115 in North America, 200 in Europe, 150 in Asia and 35 in Latin America. Respondents were sourced from 15 different countries.

Executive summary

This study of 500 institutional investors globally finds that investing sustainably2 remains a significant challenge for institutional investors globally, despite the majority recognising this approach will grow in importance over the next five years.

Performance, transparency and risk concerns were the main hurdles to sustainable investing, indicating that a large proportion of investors remain unconvinced about the merits of adopting a more sustainable investment approach.

These issues investing sustainably were particularly acute in Asia with 82% of assets owners reporting that this approach was challenging, compared to 69% in the United States. Globally, less than a quarter of investors (23%) said that investing sustainably was straightforward.

Specifically, just under half (44%) of investors globally cited performance concerns as an obstacle to investing sustainably, highlighting that many remain unconvinced of the long-term returns of this approach. Furthermore, a lack of transparency and reported data was flagged by 41% of investors, while the difficulty of measuring and managing risk was picked out by 28% of investors as a hindrance to investing sustainably.

This is despite a large proportion of investors (67%) acknowledging that investing sustainably will become increasingly important over the next five years. This sentiment was strongest in Latin America and Europe with 85% and 84% of investors respectively in these regions sharing this opinion.

At the other end of the spectrum however, 20% of investors globally stated that they did not believe in investing sustainably. Europe was the least sceptical region with this figure falling to 15%.

The bigger picture

Institutional investor investment in sustainability has increased the world over. Globally, almost half (48%) say they’ve increased their allocation to this area over the past five years.

Evidence of the growing commitment to sustainability is the rising number of signatories to the UN Principles for Responsible Investment.

Launched in 2005, the six principles, which help guide investors to incorporate ESG issues into investment practice, now have 1,750 signatories, from over 50 countries, representing approximately US$70 trillion.

According to this study, the increase in sustainable investment jumps to 60% in Europe and drops to 33% in Asia.
Around a fifth of institutional investors both in North America (22%) and Asia (23%) say they do not allocate to sustainable investments. The compares to a global average of 17%.

Institutional investment in sustainability increasing over the past five years

The increased investment in sustainability is mirrored in the percentage of institutions’ which believe the importance of sustainable investing is increasing. Globally, over two thirds (67%) say sustainable investment is due to become more important over the next five years. This is echoed across all regions under review with Europe and Latin America registering the highest levels with 29% of investors in each region saying sustainability will become significantly more important going forward.

Importance of sustainability on the rise over the next five years

 

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1 This study was undertaken by an independent research agency, CoreData Research.
2 Sustainability in this study was defined as a 'forward-looking, holistic approach to investment. There are various styles of sustainable investing, including full integration, exclusionary screening and best-in-class investing'.

 

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