Institutional Investor Study 2022: most popular approach to sustainable investing?

Almost half of professional investors have a preference for investments focused on impact, according to the latest release of our flagship Institutional Investor Study.

Schroders has sought and analysed the investment perspectives of 770 institutional investors, who are collectively responsible for US$27.5 trillion in assets and from 28 locations around the world.

The study reveals the investment appetite of global institutional investors – from corporate and public pension plans to insurance companies, official institutions, endowments and foundations.

The rise of impact investing

This year’s survey has found that 48% are focusing on the impact of their investments – up from 38% last year and just 34% in 2020.

The 2022 result marks the first time impact investing is in the top three preferred approaches to sustainable investing since it launched in 2017.

Impact investing was a particularly popular approach among respondents in Latin America (62%), followed by the UK & Europe (50%) and Asia Pacific (48%), while in North America it did not make it to the top three.

Andy Howard, Schroders’ Global Head of Sustainable Investment, says: “The findings of the 2022 Institutional Investor Study are striking. More and more institutional investors want to measure, manage and deliver impact. This annual study shows that the ability to deliver, measure and demonstrate tangible impact is increasingly important to global institutional investors.

Integration of environmental, social and governance factors into the investment process and positive screening – where investments are only considered if they meet particular sustainability criteria – are the most popular preferences, selected by 75% and 53% respectively.

Demand for ESG integration is also up substantially from 68% last year.

Results from the 770 global institutional investors surveyed highlight four key areas: 

• Investing in the energy transition as key to increasing sustainability adoption
• The journey to net zero
• Active ownership themes
• Challenges around performance concerns and greenwashing

Demand for more investment solutions focused on the energy transition and the need for tangible evidence to real world outcomes are among other key findings.

Well over half of investors (59%) said that investment in the energy transition would encourage them to invest more into sustainable investments.

In the UK & Europe and in Asia Pacific the level of interest in transition-oriented solutions was highest, at 68% and 62% respectively. However in North America energy transition opportunities were trumped by demand for quantitative evidence about the financial considerations of investing sustainably (60%).

At the same time, almost four in 10 (37%) said their organisation had committed to reaching net zero by 2050, with European investors (42%) ahead of those in Latin America (40%), Asia Pacific (37%) and North America (28%). A third (33%) of North American investors are still exploring the transition but not yet committed to specific targets.

Engagement, where investors actively influence corporate behaviour, continues to be an important focus for investors globally, with 59% wanting evidence of measurable improvements for stakeholders.

This was the ranked the most important component of an active ownership strategy by the study, followed by transparency on progress (53%) and evidence of improved financial performance (48%).

Kimberley Lewis, Schroders’ Head of Active Ownership, says: “We are in an era of transition in many key areas, including climate change, equality, diversity and many more. Old ways of working are being upended and companies will need to adapt to thrive more than ever.

“As active managers, we have a critical role to play in supporting that transition. Engagement is one of the important tools we can use to influence the companies in which we invest, to strengthen the long-term value of those assets, enhancing outcomes for clients, and to accelerate positive change towards a fairer and sustainable global economy.”

Governance and oversight – for example through transparency of voting and shareholder resolutions – was the most popular engagement theme for two thirds of investors (64%), which is understandable as it underpins all ESG themes. Human rights (62%) – the impact companies having on workers, communities and consumers – followed by climate action and transparency (61%) completed the top three.

Climate was particularly important for investors in Asia Pacific (65%) and the UK & Europe (64%) while human rights and governance came up top for North America (64% for both), and in Latin America human capital management came first (58%). This means ensuring workers are supported and protected.

Kim says: “The findings are a good reminder that while these themes affect investments globally, client priorities will vary regionally. Increasingly, we need to look at the interrelation of themes – such as a just transition, one that is as fair as possible – as well as how these themes materialise in different parts of the world.”

Meanwhile performance concerns over sustainable investments have increased in the last year. This year 53% cited these as a worry, up from 38% in 2021. Anxiety over performance had been consistently falling year-on-year until this year, a year which has seen market conditions change considerably due to the Russia-Ukraine conflict.

Andy says: “Recognising concerns over tensions between sustainable investment and return goals, it’s clear that thoughtful approaches grounded in investment experience are critical. Schroders is committing significant time, resource and expertise to developing robust and rigorous solutions to meet that need.”

What are Schroders’ commitments to the planet?

The business was a founding signatory to the Net Zero Asset Managers Initiative in 2020. Schroders’ ambition, as a founding signatory, is to reach net zero emissions by 2050 or sooner across all assets under management. Schroders has committed to 100% renewable energy globally by 2025.

Schroders recognises the growing importance of net zero carbon to its global investor clients, illustrated by associations including the United Nations-convened Net-Zero Asset Owner Alliance, which represents c.$10.4 trillion in assets under management.

For full details of Schroders’ climate commitments, read Schroders’ Climate Transition Action Plan, published last year. The Sustainable Investment team’s Engagement Blueprint also sets out new standards on active ownership and targets on engagement for equity and bond fund managers and analysts.

Schroders is a member of the Global Impact Investing Network (GIIN), a leading non-profit organisation dedicated to increasing the scale and effectiveness of impact investing. It has 350 members globally, including impact investment pioneer BlueOrchard, part of the Schroders Group, which has generated lasting positive impact for communities and the environment across the world, while providing attractive returns to investors since 2001.

Schroders commissioned CoreData to conduct the sixth Institutional Investor Study to analyse the world’s largest investors’ key areas of focus and concern including the macroeconomic and geopolitical climate, return expectations, asset allocation and attitudes to sustainability and private assets.

The respondents (770 globally) represent a spectrum of institutions including corporate and public pension plans, insurance companies, official institutions, private banks, endowments and foundations, collectively responsible for US$27.5 trillion in assets. The research was carried out via an extensive global survey during March 2022.