Survey reveals institutional investors stepping up ESG investments as COVID-19 stirs up a cocktail of risks
The global pandemic has pushed institutional investors to amplify their efforts at ESG integration as critical risks and issues come to the fore, according to a new survey from MSCI.
In its 2021 Global Institutional Investor Survey – which draws from a survey of 200 asset owner institutions with assets totalling roughly US$18 trillion, with 12% from Canada – over three quarters (77%) increased their ESG investments “significantly” or “moderately” in response to COVID-19. Among the largest institutions, those with more than US$200 billion of assets, that figure rises to 90%.
In a statement, MSCI President and COO Baer Pettit highlighted the awakening effect of climate-related events such as wildfires, droughts, and floods coupled with the global COVID-19 outbreak on attitudes toward ESG and climate change.
“Once an issue for ‘green funds’ and side-pockets, ESG and Climate are now firmly established as high priority issues,” Pettit said. “2020 marked a profound shift in the way institutions invest as many investors have recognized that many companies with strong environmental, social and governance practices outperformed during the pandemic.”
While they’ve generally been lukewarm toward ESG historically, 78% of U.S. respondents said they would raise ESG investment significantly or moderately as a response to COVID-19. The equivalent figures for Asia-Pacific and emerging markets-East Asia (EMEA) respondents were 79% and 68%, respectively.
Over a third of investors (36%) expressed a desire to devote a greater proportion of their future ESG investment mix to “social” factors. In the U.S. and the U.K, the numbers are higher at 40% and 48%, respectively, as COVID-19 coincided with a broad exposure of fault lines in inequality across society.
As motivated as institutional investors are to transform their processes in accordance with today’s imperatives, they face a long list of medium- and long-term challenges.
Of those with more than US$200 billion of assets, 31% cited climate risk as the factor having the greatest impact on the way their organization will invest over the next three to five years; other factors cited were disruptive technologies, such as artificial intelligence (19%), and increased sophistication of ESG measurement (14%). Smaller institutional investors, namely those with less than US$25 billion of assets, anticipate increasing regulations and market volatility will most greatly impact their investments over the next three to five years.
“Institutional investors face many challenges over the next five years, which is magnified by the fact that these challenges are interconnected,” Pettit said. “The reality is, climate change links to a rapidly shifting social context that in turn drives changes to investor demands, all within a very dynamic regulatory environment. These trends are amplified by technology innovation, adding significant cost and time pressure.”