ESG adoption continues to rise – except in one place

Latest RBC GAM survey of reveals unexpected holdout as risk mitigation and social factors come into focus

ESG adoption continues to rise – except in one place

Institutional investors around the world continue to embrace ESG investing as they see its risk mitigation and performance benefits become more apparent. But according to the latest Responsible Investment Survey from RBC Global Asset Management, this trend is exhibiting signs of a regional divide.

Globally, 75% of respondents said they integrate ESG principles into their investment approach and decision-making, compared to 70% who said the same in 2019. An 84% majority of respondents around the world in the recent survey also expressed a conviction that ESG-integrated portfolios will do at least as well as non-ESG-integrated investments.

There’s also a growing faith in the positives of ESG investing, as 55% of investors polled said that long-term sustainable alpha can be achieved through ESG factor integration, in contrast to just 36% who said so last year. Similarly, two thirds (67%) of this year’s participants agreed that integrating ESG factors can help with risk mitigation, up from 58% in 2019.

“As we analyze the trends in our year-over-year survey data, we've found that a growing majority of institutional investors are convinced of the merits of ESG adoption in their investment approach,” Melanie Adams, vice-president and head of Corporate Governance and Responsible Investment at RBC Global Asset Management, said in a statement.

However, viewing the data through a regional lens reveals a surprising outlier. The proportion of institutional investors who believe ESG-integrated portfolios will perform at least as well as non-integrated ones has risen in Canada (97.5% this year vs. 90% last year), Europe (96% vs. 92%), and Asia (93% vs. 78%). But that sentiment has declined in the U.S., where 74% of respondents said ESG integration leads to performance that’s at least as good compared to non-integration – down from 78% in 2019 – and more than a quarter held that ESG-integrated portfolios do worse.

Asked whether ESG-integrated portfolios can generate long-term sustainable alpha, seven tenths of institutional investors in Canada (70%), Europe (72%), and Asia (71%) said they believed this to be true, while 60% of those in the U.S. said they didn’t believe it or were unsure. With respect to ESG integration for risk mitigation, just 53% of investors in the U.S. said they were convinced, in contrast to 87% in Canada, 85% in Europe, and 65% in Asia.

Part of the general rise in sentiment toward ESG investing can be attributed to COVID-19, as more than 28% of respondents worldwide said the pandemic has pushed them to put more importance on ESG considerations.

Thirty-six per cent of respondents said they were more closely focused on specific ESG factors because of the global outbreak. Within that cohort, the top three factors cited were supply chain risk (43%), climate risk (37%), and workplace culture (31%).

Social factors have also enjoyed increased attention as 53% of investors said they want companies to disclose more details about worker safety, employee health benefits, workplace culture, and other social factors because of COVID-19.

The renewed focus on the Black Lives Matter movement and racial justice issues has also brought fresh energy to diversity considerations: 44% of respondents said they favoured board minority diversity targets, compared to 28% who opposed them. Similarly, those who favoured gender diversity targets (49%) comfortably outnumbered those who were against them (26%).

Across all participants globally, anti-corruption was ranked as the top ESG issue of concern when they invest. That was followed by climate change and shareholder rights issues, which were tied at second place.

Expectations for impact investing are likewise accelerating. This year, 40% of investors said they plan to allocate more money toward impact investing products within the next one to five years, compared to just 28% who said so last year.


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