Social or Environmental, Social and Governance (ESG) investing is getting more attention from large institutional investors in five parts of the world than it did only five years ago.
According to a new survey of global investors in the U.S., Asia, Europe, Canada and the UK, conducted by RBC, about 43% of institutional investors use some degree of ESG factors when making their investing decisions. This is an increase from 22% in 2013. The survey also found that ESG investing is expanding into fixed income instruments in addition to equities.
ESG is an investment strategy that incorporates such practices as socially responsible investing (SRI, including divestment), sustainable, responsible, impact investing, non-discriminatory, environmental protections and non-intrusive business practices into daily business operations from publicly-traded companies worldwide. An ESG investment manager then analyses these practices in every company it may invest in to see how and to what degree they comply with the ESG screens it constructs.
The ESG trend is popular among younger investors and wealthy investors who look at the society-changing power of their wealth. About 45% of U.S. households are interested in ESG investing, according to a report from Callan. The Callan report also found that 64% of endowments use some form of ESG in their investing strategies, an increase of 29% from 2013.
Highlights of the new RBC Global Asset Management survey found:
- 24% of institutions questioned said they believe an ESG-integrated portfolio would perform better than a non-ESG portfolio, a five-fold percentage increase from last year’s survey.
- About 18% of U.S. respondents still said they believe the ESG-integrated portfolio would perform worse, but that negative sentiment is down from 26% in the 2017 survey.
- 39% responded ESG analysis generates alpha (market outperformance), compared to17% who responded last year.
- In 2017, only 28% said they thought ESG portfolios could reduce risk compared to 54% this year.
- ESG also plays a role in fiduciary responsibilities. Over 50% of respondents said they use some form of ESG factors when making investment decisions, which is 50% higher from last year.
The complete RBC Global Asset Management Survey can be found here.
For more about ESG and social investing, look at these articles on this site.
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