Schroders Institutional Investor Study 2020: Active engagement identified as key tactic for driving change as greenwashing becomes main challenge
Active engagement and stewardship have leapt in importance as a way for asset managers to drive sustainable change, Schroders Institutional Investor Study 2020 has found.
Active engagement and stewardship have leapt in importance as a way for asset managers to drive sustainable change, Schroders Institutional Investor Study 2020 has found.
The study, which spans 650 institutional investors, including 179 North American investors, encompassing $25.9 trillion in assets, identified that 62% of North American institutions said active company engagement and stewardship was a key approach to integrating sustainability.
This was a significant rise on 44% a year ago. Furthermore, North American investors’ focus on an inclusionary investment approach – essentially the positive selection of ‘best in class’ companies or investments’ - had also risen in importance to 62% from 38%. In contrast, those that opted for an exclusionary approach fell by the same margin to 30% from 51%.
The results suggest that engagement and voting are now increasingly being viewed as an important aspect of achieving change, rather than simply divesting.
Investors said that transparent reporting, tangible outcomes and consistently voting against companies in order to drive change were the three key signs of successful engagement.
Environmental issues were the second most important engagement issue for North American investors, behind corporate strategy. They also pointed to national governments, inter-governmental organizations and companies as the two key stakeholders most responsible for mitigating climate change.
This broad dynamic was also reflected more broadly in investors’ continued belief in sustainable investing. Just 15% of North American investors, and 12% of investors globally, said they do not invest in sustainable investments, significantly down on 19% a year ago, for both categories.
This trend is expected to continue. In total, 68% of investors globally and 60% of investors in North America said they expected investing sustainably to grow in importance over the next five years.
Driving this focus were institutions looking to align their investments with their own corporate values, responding to regulatory, industry and member pressure, and, positively, the belief that investing sustainably can drive higher returns and lower risk.
However, as sustainable investing has become an increasingly mainstream investment consideration, the study found that greenwashing has emerged as a new challenge.
Some 61% of North American investors felt greenwashing i.e. ‘a lack of clear, agreed sustainable investment definitions’ was the most significant obstacle to their sustainable investment intentions.
Alongside the investment challenges related to greenwashing, almost half of North American investors (49%) said that a lack of transparency and reported data was restricting their ability to invest sustainably, an increase on 37% a year ago.
Encouragingly, however, performance concerns have continued to diminish. Half (50%) of North American investors cited performance concerns related to investing sustainably, down from 49% a year ago and 51% in 2018.
Some 64% of North American investors said that data/evidence which proves investing sustainably delivers better returns would encourage them to increase their allocations, followed by greater transparency by companies (47%) and more providers and benchmarks of sustainable data (43%).
Andy Howard, Global Head of Sustainable Investments, Schroders, said:
“Investors are asking more from their asset managers when it comes to sustainability, and those demands are becoming increasingly sophisticated.
“We can help clients navigate the sustainable investment landscape and support them in achieving their objectives through proprietary tools like SustainEx, and drive positive impact through our engagement and voting activity. The evidence is consistently growing that sustainable investment and robust returns are not mutually exclusive.
“We welcome regulatory efforts to harness tangible action and help fight greenwashing. This should support delivering real change and allow investors to make informed decisions. At the same time, it is also crucial that asset managers and investors do not feel overwhelmed by these growing demands and amount of sustainability information. We are working closely with industry initiatives, policymakers and regulators to strike the right balance.”
Elly Irving, Head of Engagement, Schroders, said:
“Active ownership has become more important than ever. Investors have a duty to hold companies accountable and an opportunity to drive positive change. It’s why Schroders has such a strong commitment to active ownership. By engaging with companies and using our voting rights, we can drive sustainable change to better meet the investment needs of our clients.
“As we close in on 100% ESG integration across all of our assets, engagement is now an investor-driven activity that’s prevalent across the whole firm.”
About Schroders Institutional Investor Study:
This global study was commissioned by Schroders for the fourth consecutive year to analyze institutional investors and their attitudes towards investment objectives, performance outlook and risks to their portfolio. The respondent pool represents a spectrum of institutions, including pension funds, insurance companies, sovereign wealth funds, endowments and foundations managing approximately $25.9 trillion in assets. The research was carried out via an extensive global survey during April 2020. The 650 institutional respondents were split as follows: 179 in North America, 248 in EMEA, 173 in Asia Pacific and 50 in Latin America. Respondents were sourced from 26 different countries.
For further information, please contact:
Jennifer Manser, Schroders
Jennifer.manser@schroders.com | 212.632.2947
Katherine Segura, Prosek Partners
ksegura@prosek.com | 646.818.9266
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The views and opinions stated are those of the individuals quoted and are subject to change. This document does not purport to provide investment advice and the information contained is for informational purposes and not to engage in any trading activities. Any proprietary analytical Environmental Social Governance (ESG) tools mentioned, such as SustainEx, are designed to enhance the research process but do not guarantee favourable results. Schroder Investment Management North America Inc. (“SIMNA”) is an SEC registered investment adviser providing asset management products and services to clients in the US and Canada. Schroder Fund Advisors LLC (“SFA”) is a wholly-owned subsidiary of SIMNA Inc. and is registered as a limited purpose broker-dealer with FINRA and markets certain investment vehicles for which SIMNA Inc. is an investment adviser. SIMNA Inc. and SFA are indirect wholly-owned subsidiaries of Schroders plc, a UK public company with shares listed on the London Stock Exchange. Further information about Schroders can be found at www.schroders.com/us or by calling (212) 641-3800.
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