Institutional study: sustainable investment scepticism in sharp decline

The proportion of institutional investors expressing cynicism towards sustainable investments has fallen by almost 50% since 2017. What’s more, climate change has become the main focus of engagement with companies, according to a major new study.

The proportion of institutional investors globally who do not believe in sustainable investment fell from 20% in 2017 to 11% in 2019.

Regionally, the most striking decline was in Latin America with the level of scepticism falling from 29% in 2017 to 12% in 2019. 

It was least pronounced in Europe, falling from 15% to 9%, although the level cynicism was already the lowest among all the regions in 2017, as the graphic below illustrates.

Do you believe in sustainable investments?

Source: Schroders Institutional Investor Study 2019.

The results form part of Schroders Institutional Investor Study 2019, which is an analysis of views from investors at 650 pension funds, insurance companies, sovereign wealth funds and foundations from 20 locations across the world.

• You can view the results of the study in this interactive infographic. 

Importance growing

Not only did the study find that cynicism towards sustainable investments is falling, it also found that investors expect its importance to accelerate over the next five years.

Exactly three-quarters of investors said that they expect sustainable investing to grow in importance between 2019 and 2024, an increase on the 67% five-year view recorded in 2017.

Again, there were regional variances. A resounding 84% of investors in Europe said they expect sustainable investing to grow in importance over the next five years, compared with 67% in Asia-Pacific, as the graphic below illustrates.

The % of investors expecting sustainable investing to grow in importance over the next five years

Source: Schroders Institutional Investor Study 2019.

Engagement on climate change most important

The study also found that climate change has become the most important area of engagement among investors globally, overtaking corporate strategies. Accounting quality, bribery and corruption, diversity and labour rights all increased in significance as stewardship topics.

The shift comes with the US expected to formally withdraw from the Paris Climate Agreement in early November. This will be followed by the 25th United Nations Climate Change conference, known as COP 25, in Chile in December.

Jessica Ground, Global Head of Stewardship at Schroders, said:

“These findings deliver perhaps some of the clearest evidence to date of how even the most sceptical of institutions are now recognising that investing sustainably can deliver better long-term outcomes.

“This trend is also no longer confined to specific regions globally. Investors across all the continents surveyed – including those which are often not associated with a strong sustainable focus – are increasingly convinced by the benefits that sustainable investing can deliver.

“The study emphasises that this is only going to grow over the next five years, with the likes of climate change now viewed by investors globally as the most important issue for stewardship engagement.

“We believe that establishing a clear understanding of the climate change investment risks facing our clients is a vital step towards managing those associated risks.

“That is why we have developed our Climate Progress Dashboard, Carbon Value at Risk  and Physical Risk modelling to help our analysts and fund managers measure and manage the wide risks climate change poses to our clients’ portfolios.”

Challenges ahead?

Investing sustainably still remains a challenge. More than three-quarter (76%) of investors globally said that it was at least somewhat challenging, consistent with the proportion recorded in 2017.

Performance concerns and a lack of transparency and reported data were the key issues, although difficulty measuring and managing risk also increased as a challenge for investors globally.

How challenging do you find sustainable investing?

Source: Schroders Institutional Investor Study 2019.

More evidence needed

Institutions globally stated that the availability of better data or evidence which could demonstrate that investing sustainably delivers better returns would be a key factor in encouraging them to allocate more to sustainable investments. This proportion was most striking among investors in North America (67%).

Greater transparency and better environmental, social and corporate governance-related benchmarks were the next most important factors internationally.

Globally, 64% of investors said integrating sustainability across the investment process was the preferred method for implementing sustainable considerations. Specifically, some 70% of investors in Europe favoured this method.

However, the picture was less conclusive in Asia-Pacific, with 57% of investors leaning towards negative screening, slightly ahead of the proportion which preferred full integration.

This global study was commissioned by Schroders for the third consecutive year to analyse institutional investors and their attitudes towards investment objectives, risks, private assets and sustainable investments.

The respondent pool represents a spectrum of institutions, including pension funds, insurance companies, sovereign wealth funds, endowments and foundations managing approximately $25.4 trillion in assets.

The research was carried out via an extensive global survey during May 2019. The 650 institutional respondents were split as follows: 175 in North America, 250 in Europe, 175 in Asia-Pacific and 50 in Latin America.

Respondents were sourced from 20 different locations across the world.