More Institutions Than Ever Are Considering ESG. Will They Follow Through?
Adoption of environmental, social, and governance criteria has not budged over the last three years, according to Callan’s annual survey.
Interest in environmental, social, and governance investing is surging. Callan’s annual survey of institutional investors found that 33 percent of non-ESG users were now considering incorporating ESG factors into their investment decisions.
This is the highest-ever rate of investors to consider ESG adoption in the survey’s eight-year history, and a sharp increase from last year.
However, it is not clear from consulting firm Callan’s past surveys how many of the investors who consider incorporating ESG factors actually go on to do so. Last year, for example, 12 percent of respondents who had not yet adopted ESG reported that they were considering doing so. The year before, 15 percent said they were thinking about implementing ESG practices.
Despite this, the proportion of survey respondents who said they have incorporated ESG factors into their investments has remained flat over the last three years, after peaking at 43 percent in 2018.
Still, while the overall proportion of ESG users has not changed, Callan’s 2020 survey found that there have been new adoptees over the last two years. Fourteen percent of respondents said they incorporated ESG into their portfolios this year, while 10 percent said they started incorporating ESG in 2019.
Overall, 42 percent of respondents said that they are currently applying ESG considerations to their investment decisions, the same proportion as last year. Fifty-six percent said they did not consider ESG, while 2 percent reported that they were not sure.
The 2020 survey included 102 institutional investors, including public and corporate pension funds, endowments, and foundations.
While adoption of environmental, social, and governance criteria appears to have slowed over the last few years, the proportion of ESG users has nearly doubled since Callan first launched its institutional investor survey in 2013. At that time, only 22 percent reported that they had incorporated ESG into their decision-making.
This year’s big spike in ESG interest may be partly attributable to the coronavirus pandemic, according to Callan. While 60 percent of respondents reported that the pandemic had no impact on their ESG plans, 14 percent said it would cause them to increase their rate of ESG adoption.
“Despite regulatory uncertainty in the U.S. and differing guidance from various regulatory bodies about ESG, we see increasing investor interest in incorporating financially material ESG factors into their investment processes,” Tom Shingler, senior vice president and chair of Callan’s ESG Committee, said in the firm’s statement Tuesday on the survey. “We believe the move toward more ESG incorporation is consistent with the long-term investment approach of institutional investors.”