ESG Principles Guide 70% of Institutional Investors

More than 70% of institutional investors, particularly in the UK, Canada, and the US now use ESG principles as part of their investment approach and decision-making process, according to a recent survey from RBC Global Asset Management.

The percentage of respondents who reported that they used ESG principles “significantly” as opposed to “somewhat” rose sharply in the UK, increasing 30% from last year’s survey. The gains were more subdued for Canada and the US where significant use of ESG increased 5% and 3% respectively for the year.

RBC’s research also found signs that the responsible investing market is maturing. It said that adoption of ESG investment strategies slowed in 2019 after two straight years of rapid growth. The percentage of institutional investors who said they use ESG principles as part of their investment approach and decision-making process remained relatively flat compared to last year, at 70%.

Nevertheless, the percentage of institutional investors in the UK and Canada who ”significantly” or “somewhat” adopt ESG factors continued to grow, reaching 97% and 80%, respectively. In the US, ESG adoption was remained flat from last year, at approximately 65%.

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“This new data confirms that while the multi-year trend of rapid increases in ESG adoption by institutional investors may be tapering off, the vast majority of these asset owners are still committed to using ESG principles in their investment process,” Melanie Adams, head of corporate governance and responsible investment at RBC Global Asset Management, said in a release.

“Institutional investors in the US, Canada and the UK, who already significantly incorporate ESG into their investment decision-making are more convinced than ever that this approach helps lower risk and increase returns.”

The survey also found a divergence of views about the value of ESG to investment performance. It said that respondents who identified as “significant” ESG adopters were the most confident in its investment performance as 98% of them said that an ESG-integrated portfolio would match or outperform the returns of a non-ESG-integrated portfolio.

At the same time, the percentage of all respondents who believe a non-ESG-based portfolio will outperform an ESG-based portfolio rose sharply to 18% from 10% in 2018. When asked about ESG’s ability to mitigate risk, the percentage of respondents who said they were not sure increased to 24% from 18% last year.

“While institutional investors who already significantly incorporate ESG principles appear more convinced than ever before that this approach adds value,” Habib Subjally, head of global equities at RBC Global Asset Management (UK), said in a statement. “There still remains a lot of uncertainty around ESG in the broader marketplace.”

Other findings of the survey:

Cybersecurity ranked first (67%) among ESG issues investors concerned. Anti-corruption concerns were a close second (66%).
Institutional investors are more likely to choose active management for ESG portfolios.
Investors prefer engagement over divestment. Survey data suggests institutional investors prefer to engage with corporate management rather than divest as a way to influence company behavior.
A majority of US investors are skeptical about gender diversity targets. When asked whether companies should adopt gender diversity targets 52% said no and 48% said yes. The highest no vote came from the US, at 55%, while the highest yes vote, 55.6%, came from Europe and the UK combined.

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Tags: Canada, Cybersecurity, ESG, Gender Diversity, RBC

Six members of Congress have sent a letter to the National Association of College and University Business Officers (NACUBO) calling for greater diversity among asset managers handling endowment funds of higher education institutions.

The letter cited recent research from the Knight Foundation that found that women and minorities manage a mere 1.3% of the $69 trillion asset management industry. The letter also cited a 2018 NACUBO-TIAA survey of 802 institutions in which only 4% had a diversity and inclusion policy for hiring managers.

“The lack of utilization of women and minority-owned firms is indefensible given the findings on investment performance,” said the letter. “We write today to both raise awareness and to ask for the support of college and university endowment managers in correcting this injustice.”

The letter was signed by Reps. Emanuel Cleaver, II (D-MO), Beatty, Marcia Fudge (D-OH), Hank Johnson (D-GA), Gregory Meeks (D-NY), and Terri Sewell (D-AL).

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“The disparities that exist in the asset management industry are unconscionable, and improving opportunities for diverse managers will go a long way toward equal opportunity and healthy capital allocation in the US,” said Cleaver. “The numbers clearly demonstrate that firms with greater diversity outperform their counterparts, and that colleges and universities are in a position to take advantage of this fact.”

In response to the letter, NACUBO CEO Susan Whealler Johnston wrote back essentially saying that the legislators were preaching to the choir. She said she welcomed the opportunity to show how NACUBO “has highlighted the importance of female- and minority-owned asset management firms’ active participation in the management of college and university investment assets.”

She added that the association was “keenly focused on the importance of diversity in asset management positions, as well as diversity in the business officer profession as a whole.”

Johnston said that NACUBO was not only aware of the research cited in the letter from the representatives, but that it has taken steps to underline the findings for its member institutions.

In April, the association released a podcast featuring Juan Martinez, CFO of the Knight Foundation, who discussed the findings of the report cited in the letter from the Congress members. Martinez is scheduled to speak to NACUBO’s member institutions, and the broader asset management community at the association’s endowment and debt management forum in February.

“NACUBO is also committed to our own internal diversity because it enriches and strengthens how we advance our mission,” wrote Johnston. “We are fully focused on equality and believe deeply in diversity of race, gender, sexual orientation, religion, ethnicity, and national origin, among other characteristics that make us each unique.”