Schroders Institutional Investor Study 2021: On ESG, US investors focus on data, social impact

US institutional investors focus more on ESG data and social factors than their global counterparts, according to a new study by global asset manager Schroders.

Schroders’ flagship annual institutional study, which first launched in 2017 and encompasses 750 investors and $26.8 trillion in assets spanning 26 locations, found that a higher level of concern among US investors when it comes to these issues, reflecting some of the current policy arguments across several government and regulatory bodies.

Not all data viewed equally

As calls for ESG data standardization and transparent reporting mount globally, US investors are particularly concerned about the impact on their investments. When it comes to data sources they use to inform their sustainable investing decisions, less than half (46%) reported relying on third party ESG ratings compared to 62% of the rest of the world. This matches some of the concerns from the academic world, with recent research finding that the correlation among various agencies’ ESG ratings was 0.61 on average, compared to 0.99 for credit ratings agencies[1].

Additionally, the study found:

  • 55% of respondents said lack of transparency and reported data was a challenge for them when it comes to investing sustainably.
  • 54% also listed greenwashing, which refers to falsely communicating the environmental benefits of a product or service in order to make an entity seem more environmentally-friendly than it really is, among the headwinds.
  • When it comes to engaging with companies on key issues, US investors also want to ensure they are making a real-world impact – 65%, compared to 57% of investors globally, indicated they wanted to see an outcome demonstrating a measurable improvement for a company’s stakeholders.

In terms of reporting on sustainable investing activities, 60% of US investors think they would be most helped by knowing clear and transparent details of the fund objectives including sectors or firms excluded or included, while 53% want to know how the fund contributes to specific sustainability goals.

“Institutional investors demand more than a glossy report that fails to offer an assessment of the true impact of their sustainable investments,” said Sarah Bratton Hughes, Head of Sustainability, North America. “While policymakers and regulators debate potential ways to standardize ESG data, the investment community needs to provide clear and transparent measurements in order to demonstrate tangible outcomes.”

Focus on the “S”

Notably, much more so than other investors, US institutions were concerned about social factors, with 47% noting that they would like to learn from sustainable investing reports whether the fund is performing better on social criteria than the benchmark, compared to 39% globally.

They also prioritize engagement efforts related to social issues, including 66% who are concerned about employees as a stakeholder group, when it comes to treatment of staff, diversity of workforce and other topics. Almost four in 10 (39%) said the pandemic made the role of sustainable investing in their organization more or significantly more important than before.

“Of the 22 million jobs lost due to the pandemic, 33% have not been recovered,” said Bratton Hughes. “While the reasons for this are hotly debated, it cannot be denied that the US is lacking in quality jobs that offer competitive wages, benefits, and career development. Investors are starting to take notice and demand more from companies, from an ethical standpoint and a profitability one.”

Performance concerns remain

Although sustainable investing has grown in popularity, many institutional investors want to ensure they can still maximize returns using these strategies . Over half (57%) cite performance as a factor they consider a challenge of investing sustainably, compared to only 38% of investors globally. For many, the proof is in the numbers – 75% of investors highlighted that data/evidence demonstrating that investing sustainably delivers better returns was an important part of their decision-making process.

 

For further information, please contact:

Sarah Levine: 973-219-8694 slevine@prosek.com

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*About Schroders Institutional Investor Study:

Schroders commissioned CoreData to conduct the fifth Institutional Investor Study to analyse the world’s largest investors’ key areas of focus and concern including the macroeconomic and geopolitical climate, return expectations, asset allocation and attitudes to private assets and sustainable investing.

The respondent pool represents a spectrum of institutions, including pension plans , insurance companies, sovereign wealth funds, endowments and foundations collectively responsible for $26.8 trillion in assets. The research was carried out via an extensive global survey during February and March 2021. The 750 institutional respondents were split as follows: 204 in North America, 275 in Europe (including UK and South Africa), 205 in Asia Pacific and 66 in Latin America. Respondents were sourced from 26 different locations.

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Further information about Schroders can be found at www.schroders.com/us.

Important Information:

All investments involve risk, including the loss of principal.  Diversification cannot ensure profits or abate all risk.  The views and opinions stated are those of the individuals quoted and are subject to change.  This document does not purport to provide investment advice and the information contained is for informational purposes and not to engage in any trading activities.  The material is not intended to provide, and should not be relied on for accounting, legal or tax advice, or investment recommendations. Schroder Investment Management North America Inc. (“SIMNA”) is an SEC registered investment adviser providing asset management products and services to clients in the US and Canada. Schroder Fund Advisors LLC (“SFA”) is a wholly-owned subsidiary of SIMNA Inc. and is registered as a limited purpose broker-dealer with FINRA and markets certain investment vehicles for which SIMNA Inc. is an investment adviser.  SIMNA Inc. and SFA are indirect wholly-owned subsidiaries of Schroders plc, a UK public company with shares listed on the London Stock Exchange. Further information about Schroders can be found at www.schroders.com/us or by calling (212) 641-3800.

*as of December 31, 2020

[1] MIT Sloan’s Sustainability Initiative: Aggregate Confusion: The Divergence of ESG Ratings

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.