Global Investor Study

44% of institutional investors seek proof that investing sustainably works

Nearly half of institutional investors want more proof that sustainable investments can provide better long-term returns before they invest more sustainably, a major new study has found.

The Schroders Institutional Investor Study 2017, which surveyed 500 institutional investors around the world, found 44% of investors globally cited performance concerns as an obstacle to investing sustainably. A fifth of investors (20%) did not believe in sustainable investment at all.

Investors had other concerns too. Globally, 28% of investors told us the difficulty of measuring and managing risk was a hindrance to investing sustainably, while 41% flagged a lack of transparency and reported data as an issue.

Challenges were particularly acute in Asia, with 82% of investors reporting they faced similar obstacles when it came to investing sustainably.

This is despite a large proportion of investors, 67% globally, acknowledging that sustainable investing will become increasingly important over the next five years. This sentiment was strongest in Latin America and Europe with 85% and 84% of investors respectively in these regions sharing this opinion.

Those that champion the sustainable investment approach will argue that there is already evidence that investing sustainably works and can provide better returns.

According to MSCI, its All-World index, when invested based on ESG (environmental, social and governance) factors, outperformed its parent index, which excluded ESG, by 39 basis points annually over the five years to the end of June 2017.

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

“The evidence is increasingly clear that investing sustainably leads to better long-term outcomes for institutional investors. Therefore it is important investors face little or, better still, no challenges when it comes to adopting this approach. For example risk concerns should if anything be lower for a sustainable investment approach, as they are taking a forward-looking approach to significant risks such as climate change which simply aren’t captured by traditional risk measures.

“On the subject of performance our own in-house work shows that more sustainable companies maintain their returns on capital for longer, making them attractive investments.

“It is encouraging that on the whole asset owners are increasingly recognising the importance of investing sustainably, but clearly more needs to be done for investors globally to adopt this approach.”

The report was commissioned by Schroders and undertaken by independent research agency, CoreData Research, and studied institutional investors across North America, Europe, Latin America and Asia. The 500 respondents were interviewed during June 2017 and represent a variety of institutions, including pensions funds, foundations, endowments and sovereign wealth funds.