The trade-off between risk and return is well understood by investors. Sustainability is the third dimension, a forward looking holistic approach to investment.
The Schroders Institutional Investor Study 2018* reveals the majority of institutional investors globally believe sustainability is set to play a more important role within their portfolios over the next five years.
Sustainable investing has been a growing trend in the global institutional market with almost half of respondents telling us their allocations have increased over the past five years – yet for this to continue, performance, transparency, risk and cost concerns need to be addressed if future investment forecasts are to become a reality.
Sustainable investing is growing in prominence among institutional investors as they understand the valuable role it has and how this is due to grow in the future - three quarters of respondents to this study believe this way of investing is due to become more important over the next five years. This represents a greater number of institutional investors when compared to last year when 67% thought sustainable investing was due to become more important.
Across the whole institutional market, the increase in sustainable investment has remained consistent. Just under a half of investors say they increased their sustainable holdings over the past five years. This was the same level registered last year.
Investors with larger AUM (above $50 billion) seem to have a greater sustainability focus than the rest.
Investors with a longer holding period (5 years and above and full investment cycle) have a greater sustainability focus than the rest.
When asked specifically about ways to increase investment in sustainability, investors reiterate their call for greater transparency by companies on both financial and nonfinancial performance reporting (23%).
Institutional investors request better sustainability related benchmarks that would help investors properly measure the performance of their sustainable investments and differentiate these strategies from traditional investment approaches.
The chart below shows that just over a third of investors (34%) also say they are looking for innovative solutions to help them increase sustainability in their portfolios.
In terms of areas of focus when it comes to sustainability, institutional investors rank corporate strategy (24%) and climate change (22%) as the most important.
While governance has always been an area of focus for investors, environmental factors are rapidly growing in importance as the debate on climate change continues and the effects of environmental risks continue to come to the fore.
This study demonstrates that investors who prioritise investing sustainably tend to have longer-term investment horizons and greater confidence about achieving their return targets. Empowering investors to think longer-term and avoid making short-term, knee-jerk investment decisions has also been a growing focus of policymakers globally.
* This global study was commissioned for a second year by Schroders to analyse institutional investors and their attitudes towards sustainable investments, investment objectives and risk. The research was carried out via an extensive global survey during June 2018. The 650 institutional respondents were split as follows: 175 in North America, 250 in Europe, 175 in Asia and 50 in Latin America.
Our business is structured around a number of strategic capabilities, which combine to meet a variety of client requirements. Please visit the Strategic Capabilities - Sustainability page to discover how we sustainably deliver long-term value in a fast-changing world.