Published on September 4th, 2018 | by Joshua S Hill0
Sustainable Investing Is A Low Priority For Institutional Investors
September 4th, 2018 by Joshua S Hill
Sustainable investing remains a low priority for institutional investors, according to Schroders Institutional Investor Study 2018, despite expectations that it will grow in importance over the next five years.
Global investment manager Schroders conducted its Institutional Invest Study for the second year in a row, interviewing 650 institutional investors responsible for approximately $24 trillion in assets from all around the globe (175 in North America, 250 in Europe, 175 in Asia and 50 in Latin America). The study identified what it termed a “mismatch between institutions’ perceptions of the importance of sustainability” — where sustainability was defined as “forward-looking, holistic approach to investment. There are various styles of sustainable investing, including full integration, exclusionary screening and best-in-class investing” — “and what is still happening at the coalface of their investment process.”
Specifically, 32% of respondents said that the sustainability focus of their investment had little to no influence on their investment decision-making process — significantly less than factors such as strategic asset allocation, fund manager track record, anticipated return, and risk tolerance.
Interestingly, however, the study found that investors with larger investments in assets under management (AUM) considered sustainability a more important priority. Specifically, according to Schroders, investors who placed a higher priority on sustainability were those with a longer-term investment horizon, more investment confidence, and prioritized risk-adjusted returns.
“There remains a gulf between institutional investors’ sustainable investment aspirations and the reality of how they prioritise these factors in their investment decision-making,” said Jessica Ground, Global Head of Stewardship at Schroders. “Investors clearly recognise 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.
“This study demonstrates that investors who prioritise investing sustainably tend to have longer-term investment horizons and greater confidence about achieving their return targets.”
In fact, the survey figures reveal that long-term investing runs hand-in-hand with sustainable investments. 32% of investors with holding periods of at least five years stated that sustainability was a significant influence, whereas only 23% of investors with an investment horizon of between three to five years considered sustainability a significant influence. Additionally, investors more focused on sustainability were also more likely to be confident in achieving their return expectations — 59% were at least reasonably confident in meeting their expectations, whereas 37% of investors who did not prioritise investing sustainability could claim such levels of confidence.
“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 Jessica Ground. “Over time, this study highlights that sustainability is going to increasingly sit alongside institutional investors’ more long-standing investment priorities, although there still remain barriers to overcome to achieve this in the near term.”
The major discrepancy, however, was the current priority level for sustainable investment compared with the perceived future importance — 74% of investors stated that investing sustainable would grow in importance over the next five years, up on 67% from a year ago. The most important factors investors should engage companies on were corporate strategy, climate change, and accounting quality.
Despite this perceived future importance of sustainable investing, 77% of investors admitted they found investing sustainably at least somewhat challenging, with 51% citing performance concerns as their primary obstacle to investing sustainably, followed by a lack of transparency and difficulty in measuring risks.