ESG-based investments improve in popularity and performance

Around 90 per cent of institutional investors believe that portfolios integrated with environmental, social and governance (ESG) are likely to perform “as well” or “better” than non-ESG portfolios.

The global survey, conducted by RBC Global Asset Management (RBC GAM), revealed that more investors are adopting a responsible investment strategy and beginning to consider how to implement a responsible investment approach, including for pension schemes.

A further 38 per cent of those surveyed believed that integrating ESG can help generate alpha, up from 24 per cent in 2017. Furthermore, only 20 per cent of respondents did not think that ESG was a source of alpha.

However, investors are still uncertain, as 42 per cent said they were unsure whether ESG was an alpha source.

RBC GAM vice president and head of corporate governance and responsible investment, Judy Cotte commented: “Importantly, many institutional asset owners now believe they have a duty to consider a responsible investing approach. This ongoing shift has significant implications for how large institutional asset pools are allocated, as well as the advice and service provided by consultants and asset managers.”

The study also found that more than 50 per cent of those surveyed who incorporate ESG factors into their investment approach say they consider this to be part of their fiduciary duty, which is double the percentage in 2017.

Additionally, the diversity of ESG investment options has increased. Equities remain the focus as 84 per cent of institutional investors apply ESG analysis to their equity investments.

However, RBC GAM’s study revealed that ESG analysis is moving beyond equities. Around 60 per cent of respondents incorporate it into their fixed-income portfolios, 43 per cent in real estate, 36 per cent in infrastructure and 34 per cent in alternative assets.

RBC GAM senior portfolio manager and head of global equities, Habib Subjally concluded: “As industry acceptance of ESG integration has accelerated and become mainstream, there will be greater focus on ESG-related investment research and its application in the portfolio management process. And as the demand for responsible investment solutions grows, asset managers and consultants will increasingly be called upon to offer guidance to their clients about responsible investing options that support their long-term financial goals.”

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