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European investors lead US counterparts for ESG adoption

Institutional investors in Europe are significantly more advanced in terms of their adoption of Environmental, Social and Governance (ESG) investment practices, compared with their counterparts in the United States, the Schroders Global Investor Study of institutional investors[i] has found.

In Europe, 58% of pension fund investors already see ESG as an important consideration, substantially higher than 21% in the US. Furthermore, just 14% of pension fund investors in Europe do not think ESG will ever be an important consideration, yet this rises to 53% for investors in the US.

The disparity is underlined by the findings that 40.3% of the average European pension fund investor’s portfolio is allocated based on ESG principles, more than double the amount in the US (20.1%).

The study, which covered a broad spectrum of investment topics, also found that investors globally rate long-term potential growth and good risk-adjusted returns as the two most important factors when choosing an investment product. Inflation-beating investment performance also ranked highly in terms of investors’ preferences. 

The least important factors were the need for income and being invested in a familiar industry or country. Interestingly, liquidity and beating a relevant benchmark or index featured were also ranked among the less important aspects.

The study also found that the average period for which institutional investors expect to hold their investments is 4.7 years  - close to the generally recommended five-year period. Pension fund investors in North America had the longest average holding periods, with Asia-Pacific-based investors the shortest. 

Gavin Ralston, Head of Official Institutions and Thought Leadership, Schroders said:

 “The background to this study is one of significant political turmoil. The rise of populism at a time of already heightened central bank intervention has created an investment environment that demands clear-headed navigation. Investors of all types are under pressure to find returns in a climate of lower growth and higher uncertainty.

“In spite of this challenging backdrop, Schroders’ own experience is that pension fund investors are increasingly engaged and interested in ESG matters.”

Please click here to view the full report. 

[i] This independent study of 712 institutional investors was commissioned by Schroders during the period of April and October 2016. Respondents came from the UK, France, Germany, Netherlands, Belgium, Switzerland, China, Japan, Hong Kong, Singapore, Australia, USA, Canada, Brazil and Chile.