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Institutional Investor Study 2021

Sustainability

Schroders Institutional Investor Study 2021 – spanning 750 institutional investors, collectively responsible for $26.8 trillion in assets – reveals that institutional investors are wanting more from their sustainable investments and asset managers. This year’s results have highlighted that while Covid-19 has accelerated sustainable investing for institutions, sustainability still remains a challenge and measuring and quantifying the impact of investments has become a priority.

%

find sustainable investing challenging

%

cite integration as their preferred investment approach

%

believe environmental issues are the most important engagement topic for asset managers

%

identify greenwashing as the biggest challenge to investing sustainably

Sustainable investing has grown significantly in recent years and the resulting attention from investors, regulators and asset managers has been inevitable. Added to the mix is the impact of Covid-19, which has affected all aspects of our lives with sustainable investing being no exception. The message from this year’s Institutional Investor Study is clear. Covid-19 has intensified the spotlight on sustainable investing, institutional investors need clarity on the goals and strategies fund managers employ and increasingly, many also want to know the impacts their investments deliver.

Andrew Howard Global Head of Sustainable Investment
COVID-19 & SUSTAINABILITY

Covid-19 has accelerated the importance of sustainability

2020 was a truly transformative year. It fundamentally changed the way we live our lives but was also the year when we saw systematic change in how investors feel about sustainability. While we have consistently seen a growth in the uptake of sustainable investing since we began the Study in 2017, Covid-19 has accelerated this trend. This year, 52% of global institutional investors view the role of sustainable investing within their institution as more important because of Covid-19.

The below chart highlights global responses for “significantly more and more important”.

map of europe
Global
%
North America
%
Europe
%
Asia-Pacific
%
Latin America
%
implementation

Inclusive approaches to implementing sustainability continue to be popular

When ranking in order of importance, integration and positive screening continue to be the preferred approach to implementing sustainable investing for global institutional investors, while negative screening remains less popular. This year’s results highlight that inclusive approaches are increasingly being viewed as an important aspect of driving change, rather than simply divesting.

Investor attitudes are also becoming more specific, with growing demand for thematic investing and impact investing as they seek out specific environmental and social themes to make tangible impacts through the way they invest.

ESG integration into the investment process

Positive screening

Thematic investing

Active company engagement

Negative screening

Impact investing

ESG integration into the investment process 67%
Positive screening 58%
Thematic investing 48%
Active company engagement 45%
Negative screening 43%
Impact investing 38%

Environmental issues were at the top of investors’ thematic preferences for both product and engagement activity. Download the report to learn more

Download Sustainability Report
Real world outcomes

Real world outcomes and tangible results have become a key priority

54% wish to positively impact society & planet through sustainable investments

Investor appetite and understanding around sustainability are becoming more sophisticated. When considering what successful engagement is, data suggests investors are beginning to move away from “having” to invest sustainably (because of regulatory requirements or corporate alignment) towards “wanting” to make an impact with their investments. This sentiment has been seen in this year’s results, where more than half of global investors have stated their primary driver to invest sustainably is the desire to positively impact society and the planet. Regulatory and industry pressure (43%) continues to be an important motive, particularly as we have seen an unprecedented number of new regulations and standards emerge in recent years.

This demand for making positive impacts translates not only to the investment decision making process of which companies to hold, but also the actions taken during the holding period. 57% believe that successful engagement equals a real world outcome which demonstrates a measurable improvement for a company’s stakeholders (customers, communities, employees, environment, regulators & governments, suppliers).

Real world outcome demonstrating a measurable improvement for a company’s stakeholders*
Achieving more transparent reporting
Engagement insight or outcome is reflected in the investment case*
Consistently voting against companies in order to drive change
Public statements against companies
2020
%
%
%
2021
%
%
%
%
%
*This chart includes options that were not asked in 2020.

This year’s Study has shown that people want to measure and quantify the impact on their investments. We believe the future of assessing investment performance is going to be three dimensional, with the emphasis being on risk, return and impact. This is why active ownership is so critical, because this is where the dialogue, engagement and voting happens. It is through this process that we can gather more insights and information about a company and what the risks and impact of investing in that company actually are.

Hannah Simons Head of Sustainability Strategy
Enduring challenges

Despite the growing interest and conviction, challenges remain

Although sustainability is now a major consideration in institutional investors’ asset allocation, this year’s results have shown that the degree of complexity around sustainable investing is still relatively high.

80% of global institutional investors find sustainable investing challenging

Investor concern about greenwashing and the lack of transparency and data continues to be a major hurdle for further sustainable investment adoption. Interestingly, cost concerns are also rising. While correlation does not necessarily equal causation, it is widely agreed that sustainability data is still relatively nascent and can be difficult to gather without the help of third party providers, whose services often come with a hefty price tag.

Of course, lack of transparency and data also creates difficulty in successfully measuring and managing risk and this is felt by 53% of global investors. Given the speed at which ESG has grown in the market in recent years, and some regulatory efforts yet to take full effect, we believe the lack of consistent standards and definitions may be a key contributor to the 46% of respondents that selected this response. Encouragingly, we have seen a consistent year-on-year decrease around performance concerns.

Greenwashing
60% 2020 59% 2021
Lack of transparency and reported data
40% 2019 48% 2020 53% 2021
Difficulty measuring and managing risk
35% 2019 33% 2020 46% 2021
Performance concerns
48% 2019 45% 2020 38% 2021
Cost
20% 2019 23% 2020 34% 2021

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