This content is from: Portfolio

ESG Focus Dents Returns, Investors Fear

Nearly half of global asset owners believe “sustainable investing” comes at a cost, asset manager Schroders has found.

  • Joe McGrath

Nearly half of investors in Europe worry that investing with environmental, social, and governance principles in mind will negatively impact returns over the long term, a study has shown.

According to Schroders’ “2017 Institutional Investor Study,” 47 percent of investors in Europe cited long-term performance concerns as a barrier to adopting an ESG-oriented investment strategy. 

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Europeans, on the margin, were the most concerned about hampering performance, with 45 percent of Asian investors and 42 percent of North Americans responding the same way.

Schroders surveyed 500 institutional investors globally, including 200 in Europe, 150 in Asia, 115 in North America, and 35 in Latin America in June 2017. The respondents included sovereign wealth funds, foundations, endowments, insurance companies, and pension plan investors.

When asked if sustainability characteristics were relevant to infrastructure investing specifically, roughly one in five Asia-based institutional investors and a quarter of Europeans said they are.

Some asset managers disagreed with the overall lukewarm response. “There are a few asset classes that touch people in their daily lives as much as infrastructure,” Peter Hofbauer, head of infrastructure at Hermes Investment Management, told Institutional Investor. “We are a steward of assets that provide services to multiple generations. We see these businesses as having a social contract.”

The results of the Schroders’ survey showed that investors had very different ideas when it came to equity investments, though. The vast majority — 83 percent in Europe, 77 percent in North America — said they deem sustainability an important consideration when investing in shares.

Additionally, the Schroders poll found considerable wariness around the use of social impact funds to generate profit. Globally, just 9 percent of investors said that profit would be their main motivation for using specialist social impact funds with a focus on human rights, poverty, or social welfare. The research also found that 14 percent of North Americans and just 5 percent of Europeans saw profit as the main motivation for using these strategies.

Schroders argued against some of the opinions voiced in its findings. Global Head of Stewardship Jessica Ground said “the evidence is increasingly clear” that ESG-oriented investing leads to better long-term outcomes for investors. “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.”

Ground added that it was clear that “more needs to be done” before investors embrace such strategies more broadly.

The research comes days after speakers at the UN Principles for Responsible Investment conference warned that investors were potentially overlooking investment risks by ignoring some companies’ human rights track records.