But of course, this depends on the risk/return profiles of the required investments according to a recent survey
Most of the world’s largest investors are willing to back projects that address societal challenges, as long as risk/return profiles meet their long-term goals.
That was the view of 6 in 10 institutional investors responding to a survey by Natixis Investment Managers which also found that 96% believe they have an important role to play in addressing the world’s most pressing challenges, including climate change, social and economic inequality and the need for infrastructure development.
“Institutional investors must now find ways to meet their mandates in a world that’s even more yield- starved while facing unprecedented social, political, financial and environmental threats,” said David Giunta, CEO for the US at Natixis Investment Managers. “We’re seeing institutions draw on a wider variety of assets and resources now more than ever to achieve their long-term objectives.”
The survey also revealed that:
- Nearly six in ten (57%) institutional investors say that solvency and liquidity requirements create a bias for short-time horizons and highly liquid assets
- just under half (48%) say their ability to execute long-term strategies is inhibited by the market’s focus on short-term performance expectations. Meanwhile, 31% also report internal pressure from their own boards’ focus on quarterly results.
Institutions should do more
Almost half of respondents said that institutions should put capital to work for environmental, social, and governance (ESG) issues, champion corporate governance issues, and use their influence to change corporate behaviours.
“Impact investing has vast promise and the possibility for win-win arrangements on a massive scale, but these types of initiatives often present risks that are prohibitive for institutional investors,” said Dave Goodsell, Executive Director of Natixis’ Center for Investor Insight. “Platforms such as blended finance have the potential to make investing in socially beneficial projects more realistic for institutional teams, and free up capital to improve living conditions around the globe.”
Over three-quarters (78%) of institutions say they are invested in sustainable infrastructure projects, many of which offer the potential to generate ESG benefits alongside financial returns.
However, there is concern about risk, especially for emerging and frontier markets.
Regardless of the risks, Natixis finds a trend toward private investments among institutional investors with nearly seven in ten saying that private assets will play a more prominent role in their investment strategies going forward.