Three quarters of the professional investors, including institutional investors and advisors surveyed by global management firm, Natixis Investment Managers, say considering environmental, social and governance (ESG) strategies today, is an integral part of sound investing. A separate survey of Canadian investors, conducted by EY Canada, meanwhile, finds that adoption by Canadian managers would appear to be lagging.
Responses from the first survey of 3,600 professionals from around the world, conducted by Natixis in 2020, were analyzed alongside responses from 9,100 individual investors globally in 2018 and 2019, to measure the rise of ESG investing as more financial institutions worked to deploy a broader range of ESG strategies to meet consumer demand for more sustainable investments.
The survey found the number of professional investors implementing ESG strategies grew by 18 per cent since 2018. The surveys also show a 51 per cent increase in the number of institutional investors being active shareholders, in an effort to influence corporate behaviour.
Institutional investors embrace ESG
“Approximately three quarters of professional investors, including 72 per cent of institutional investors and 77 per cent of the gatekeepers who select funds for their firm’s investment advisory platform, are now implementing ESG strategies, up from 61 per cent and 65 per cent, respectively, in 2018,” Natixis researchers write. They add that the pace of growth accelerated in 2020, while investors poured record amounts into ESG funds and firms launched an unprecedented number of new ESG products.
The survey also found that 68 per cent of professional fund selectors plan to further expand their firm’s ESG offerings, to meet investor demand. Of those surveyed, 75 per cent attribute this increased demand to investors’ heighted social awareness. Half said the demand is a result of the fact that ESG investing has reached critical mass among mainstream investors.
Of the financial advisors surveyed, 59 per cent said they expect ESG investing to become standard practice across the industry within five years. More than half of all surveyed, including 53 per cent of institutional investors and 55 per cent of fund selectors, now agree that companies with better ESG track records generate better investment returns.
Lack of standard ESG data a hurdle
All that said, they add that the lack of consensus on ESG measurement has been a challenge for investors. “When it comes to evaluating a company or an industry, nearly half (48 per cent) of professional fund selectors consider nonfinancial ESG factors to be as important as fundamental financial factors, yet 67 per cent of fund selectors and 74 per cent of institutional investors say it is still hard to know which nonfinancial measures are material to investment analysis,” they write.
The survey also measures the approaches firms are taking to include ESG in their portfolios, including integration where ESG analysis is integrated into the overall investment process to account for issues that have the potential to materially affect company performance, along with negative screening and active ownership.
“Natixis research found no single consensus approach to ESG investing,” they add. “Rather, firms are employing multiple approaches with distinct risk-return features that allow them to tailor strategies and address different financial and nonfinancial objectives.”
Canadian survey on ESG adoption paints a very different picture
The report from EY Canada, this time based on a survey of 20 Canadian asset management firms, also found that client demand is the top market driver of ESG integration. More, they say only 10 per cent of Canadian asset managers have an impact investment offering today.
The report, The rise of ESG investing, also agrees the lack of standardized data is the biggest challenge to full ESG integration. They add that even as demand grows, three quarters of Canadian managers say it will take another two to five year before ESG is fully integrated into their investment processes.
“While we’re still witnessing the early stages of its impact on capital markets, ESG represents a fundamental change to the traditional investment approach – both from a risk management and an alpha generation perspective,” says EY Canada sustainable finance leader, Jean-François Gagnon. “As more clients start to demand the same level of transparency on their portfolio’s ESG impact as on its financial performance, asset managers who are able to deliver on both dimensions will gain a considerable competitive advantage.”