- Half of global institutional investors now fully integrate ESG into their investment approach
- Usage of active ownership strategies to engage companies on ESG has more than doubled
- Investors in North America are lagging their global counterparts in terms of embedding ESG
Q2 2020 hedge fund letters, conferences and more
ESG Investing Momentum Has Grown In The Wake Of Covid-19
(London, July 2020) Momentum behind ESG investing has grown in the wake of Covid-19 as institutional investors increasingly adopt more sophisticated and fully integrated strategies, new research shows.
A CoreData Research study of 500 global institutional investors found more than half (51%) now fully integrate ESG into their investment approach – up from 36% in the final quarter of 2019.
The survey, undertaken in the second quarter of 2020, indicates that far from putting the brakes on ESG investing, the pandemic has accelerated its adoption.
Indeed, the study reveals usage of active ownership strategies to engage companies on ESG has more than doubled from 19% in Q4 2019 to 41%. In addition, far more investors now use impact investing (29% vs. 18% in Q4 2019) and thematic investing (24% vs. 15% in Q4 2019).
“While the trend towards ESG investing was already well underway, it seems the pandemic has further encouraged asset owners to consider the purpose and impact of their investments,” said Andrew Inwood, founder and principal of CoreData.
North American Investors Are Lagging Their Global Counterparts
The research findings also show investors in North America are lagging their global counterparts in terms of embedding ESG into the investment process. Fewer North American investors use full ESG integration (36%), active ownership (30%), thematic investing (21%) and impact investing (22%).
In contrast, Asia is leading the sustainability charge. A far higher percentage of Asian investors make use of full integration (69%), active ownership (61%), thematic investing (33%) and impact investing (39%).
The deeper integration of these sustainable strategies come as institutional investors around the world increasingly deploy ESG to generate better risk-adjusted returns (33% vs. 22% in Q4 2019).
The growing focus on ESG is also evident in the way investors increasingly consider an asset manager’s own sustainability credentials when investing. About half (49%) of global investors now take this into account — up from 39% in Q4 2019. However, the proportion of North American investors looking at a manager’s ESG track record has fallen from 38% in Q4 2019 to 35%.
A Number Of Challenges
While global investors continue to refine their ESG strategies, they also point to a number of challenges. The primary concern, cited by more than eight in 10 (82%) respondents, is greenwashing. Other main hurdles include transparency (70%) and performance (69%). Investors in North America, where ESG is less integrated, are most inclined to cite issues over transparency (74%) and performance (73%).
“These findings suggest transparency and performance concerns are holding back greater adoption of ESG,” added Inwood. “This underscores the need for improved ESG reporting and better benchmarking data so investors have a fuller picture of the risks and potential rewards of sustainable investments.”
