The global demand for energy transition investment opportunities and the importance of decarbonisation have been highlighted as key sustainability themes for global institutional investors. This year’s Institutional Investor Study – spanning 770 institutional investors, collectively responsible for US$27.5 trillion in assets – highlight that real world outcomes is key to active ownership.
The findings of this year’s Institutional Investor Study are clear; more and more institutional investors want to measure, manage and deliver impact. Recognising concerns over tensions between sustainable investment and return goals, it’s becoming clear that thoughtful approaches grounded in investment experience will be increasingly critical.
ESG integration remains the most preferred approach to implementing sustainability, having been on a steady growth path for the last three years. It is now adopted by 75% of institutional investors globally. This reflects that ESG integration is core to their investment process even as they add other approaches. However, this year impact investing (investing with the objective of achieving environmental and social benefits alongside financial return) has seen the greatest increase over the last three years, with 48% of investors highlighting impact as their preferred method, up from 34% in 2020. This reinforces that investors are seeking out investments that help tackle social and environmental challenges that make a tangible positive impact to people and planet.
Q: What is your preferred approach to implementing sustainable investments?
When asked what would encourage investors to further adopt sustainable investments, 59% of global investors highlight new investment opportunities addressing the energy transition as a key priority going forward. This focus was particularly strong in the UK and Asia Pacific where 68% and 62% of investors respectively highlighted the need for more transition-oriented solutions. The need for more quantitative evidence around the financial considerations of investing sustainably is also important (60%); especially for investors in North America.
Q: What would encourage you to invest more in sustainable investments?
Across the globe, institutional investors are committing to align their portfolio to net zero with 39% of investors having already made or achieve their net zero commitment. A further 21% have made emissions reduction commitments, showing that the journey to net zero has very much begun.
Commitment to achieving net zero by 2050 is greater among UK & Europe and Asia Pacific investors (42% and 40%, respectively). One-third of North American investors are still exploring the transition but are not yet committed to specific targets.
Q: Where are you on your path to net zero?
Engagement remains a key focus for investors globally with 59% stating that tangible evidence of real world outcomes was the most important component of any active ownership strategy. Specifically, 64% believed governance (e.g. transparency of voting and shareholder resolutions) was the top engagement theme, which is understandable as it underpins all ESG themes. A focus on human rights (62%) and the climate (61%) completed the top three in terms of engagement priorities.
Q: How important are the following engagement topics to you?
We are in an era of transition in many key areas, including climate change, equality, diversity and many more. As active managers, we have a critical role to play in supporting that transition. Engagement is one of the important tools we can use to influence the companies in which we invest, to strengthen the long-term value of those assets, and to accelerate positive change towards a fairer and sustainable global economy.
When we look at the regional data, climate was particularly key for UK & Europe and Asia Pacific, human rights and governance came up top for North America and in Latin America, human capital management was first. This demonstrates that while these themes affect investments globally, client priorities will vary regionally.
Schroders is a world-class asset manager operating from 38 locations across Europe, the Americas, Asia and the Middle East.