Why the silent majority are more focused on returns than ideology in sustainable investing

Sustainable investing has always attracted a wide range of views from advocates to sceptics. Recently the investment industry has been stretched by “anti-ESG” voices at one end of the spectrum, and by calls for more strident action at the other as those views have moved further apart.

On the one hand, several US States have created “blacklists” of financial firms, reflecting their concerns that asset managers are pursuing sustainability goals rather than focusing on investment returns. Schroders has been caught on two of those lists, in Texas and Kentucky. On the other, calls to divest from larger parts of the market or to demonstrate sustainability commitments by opposing management in voting decisions are also growing louder.

Voting patterns on environmental and socially-focused shareholder resolutions are at least an objective measure of market views on different topics, even if imperfect. Levels of support for high profile shareholder resolutions, such as those calling for greater climate ambition at BP or Shell, were very similar this year compared to the previous year. In our view, there is no obvious move in the aggregate picture towards either extreme.

Looking globally, the charts below show the average levels of support for sustainability-focused shareholder resolutions, which has dipped in recent years. That drop becomes much less pronounced when we strip out resolutions developed or filed by advocacy groups, which have grown to around one third of the total and which have clear environmental or social priorities.

While the debates at either end of the spectrum ignite coverage and commentary, the silent majority in the middle is far larger and, for the most part, focused on investment more than ideology.

Virtually all of our clients are concerned with risk and return, which is our primary focus, but some of our clients are looking for investments that connect their capital to solutions to global environmental and social challenges, and we have developed strategies to help them do so.

Across Schroders, the view we take on this type of investing is framed by a conviction that social and environmental forces will become increasingly important investment drivers in markets. We believe that companies better placed to navigate those challenges or seize opportunities will be better positioned. Moreover, those that can transition their businesses to become more sustainable will be well placed to unlock value and returns for shareholders.

Companies that have successfully reduced emissions faster than their peers over the last five years have outperformed those in the worst quintile of emissions management by around 3% annually over the last five years. This is based on Schroders analysis of changes in carbon intensity (CO2 emissions relative to sales) for MSCI ACWI IMI constitutions, relative to their ICB sector peers over the last five years.

By allocating capital to well positioned companies and assets, and by encouraging the transition towards more sustainable business models, we believe we can help our clients to benefit financially from action to tackle social and environmental challenges.

Looking forward, we expect more dispersion and more debate by advocates at both ends of the spectrum. We continue to focus on the connection between the investments we manage and increasingly acute and disruptive social and environmental challenges.