Sustainable investment: time to engageHow people view "active ownership" as a key aspect of sustainable investing
As people understand more about sustainability, they are thinking in greater depth about what it means. One aspect is “active ownership”, where investment managers influence company boards and management teams so that more sustainable practices are properly considered for the benefit of long-term value creation.
The Global Investor Study 2023 indicates people recognise and support the concept and think it will improve investment returns. And the more investment experience they have, the more they believe in active ownership.
People believe that working with businesses to operate sustainably leads to greater value in the future
Whether encouraging companies to act sustainably helps them generate long-term value
Active ownership involves many value judgments and can be complex. Many financial experts point out, however, that active ownership exerts a positive force. It also improves investment returns by encouraging the company's management to adopt sustainable business practices.
Almost all respondents have heard of active ownership, although 17% admitted they don't know what it means. As their investment knowledge rises, however, people overwhelmingly understand the concept: among those who rate their investment knowledge as expert, 75% said they had a clear grasp of the term and its definition.
As people learn about investing, they become more convinced that engagement adds value
Who strongly agrees that encouraging companies on sustainability adds value?
Active ownership is generally most potent in the hands of fund managers, who aggregate larger holdings and meet regularly with senior management within companies, providing an opportunity to drive change for the better. This means fund managers must decide which sustainability issues are most important and should be prioritised when talking to companies. The survey provides a unique insight into how people want their fund managers to engage with companies.
Globally, people want asset managers to engage with companies on climate, natural capital and treatment of workers
The areas that people feel are most important for asset managers to engage with companies on
Climate change, the number one choice, is already a core element of active ownership for most asset managers. The second choice is natural capital and biodiversity, which is still an emerging issue for investors. However, in September a global initiative known as the Taskforce on Nature-related Financial Disclosures agreed final standards, which means that in time investors will be able to benchmark companies globally by their impact on the natural world.
People were also asked about the companies they would like to exclude from their portfolio completely. They were surprisingly vocal on tobacco companies, which ranked second only to companies with high carbon emissions. There is some link to tobacco consumption: people in Singapore, Sweden and Canada — three countries with relatively low rates of smoking — had the greatest aversion to investing in tobacco companies.
Almost everyone has an area they want their investments to avoid, with high emissions top of the list
The areas people would prefer their investments avoided
Sustainable investing is evolving fast, and much has happened since the Global Investor Study of 2022.
Yet the survey shows that people are still increasingly attracted to sustainable investment. People no longer see sustainability and high returns as opposites — the number staying away from sustainable investing because they think it won't offer higher returns has fallen by more than half. People believe they can have both.
People continue to be drawn to sustainable funds
Whether people are attracted to sustainable funds and why
Despite this, there are still changes that would lead people to increase their sustainable investments. This year, for the first time, people were asked whether reduced public controversy would lead them to increase their sustainable investments: 8% agreed.
A third of people said they would invest more if the providers of sustainable investments self-certified that their sustainable investments are sustainable — the financial equivalent to the "Appellation d'origine contrôlée" label that shows a bottle of Champagne is indeed from the Champagne region of France and produced using traditional methods. This figure is little changed from 2022. Another finding is that more education would encourage more sustainable investment.
There is an important nuance here. Although many people would increase their sustainable investments if they understood more, they feel they know enough to make some sustainable investments. Only 19% said they felt held back from increasing their sustainable investments because "I don't understand what sustainable investing is".
The most-mentioned barrier to entry is foundational: people want data to show their investment strategy is having an impact.
This may seem a strange finding: companies are now producing vast amounts of data on their carbon emissions, workforce diversity, community impact and much more. For instance, the most recent report on Environmental, Social and Governance for Apple runs to 85 pages; the Sustainability Data Book for Toyota is even larger at 127 pages. However, this would amount to a lot of reading for a person with even a modest portfolio. For private investors, there is a lack of simple, non-technical benchmarking that would allow them to see whether the companies in which they invest are making progress on sustainability. Despite all this progress on sustainable investment, more must be done.
“The findings of the Global Investor Study 2023 underline the widespread but growing recognition of the importance of active ownership to sustainable investment. Companies across industries face a wide range of challenges and opportunities, and intensifying pressures to adapt and evolve. As active managers with a long term and fundamental focus, using our voice and influence to encourage companies to build healthier, more sustainable business models has long been important and is becoming more so as those trends intensify.”
Global Head of Sustainable Investment