Institutional investors face sustainability investment hurdles

Investing sustainably remains a significant challenge for institutional investors globally, despite the majority recognising this approach will grow in importance over the next five years, Schroders Institutional Investor Study* (SIIS) has found.

Performance, transparency and risk concerns were the main hurdles to sustainable** investing. More than three-quarters (77%) of investors, spanning pensions funds, foundations, endowments and sovereign wealth funds, reported that investing sustainably remains a challenge.

This is in marked contrast to 23% of investors who find adopting a sustainable investment approach straightforward.

Challenges were particularly extensive in Asia, with 82% of asset owners in the region reporting difficulties. This contrasted with 69% of investors in the US acknowledging challenges.

Specifically, just under half (44%) of investors globally cite ‘performance concerns’ as an obstacle to investing sustainably, highlighting that many remain unconvinced of the long-term returns of this approach.

Furthermore, a ‘lack of transparency and reported data’ was flagged by 41% of investors, while the ‘difficulty of measuring and managing risk’ was picked out by 28% of investors as a hindrance to investing sustainably.

These challenges came despite 67% of investors globally recognising that investing sustainably will become increasingly important over the next five years. Notably, 85% of Latin American investors said that sustainability would increase in importance. In contrast, less than two-thirds of Asian investors (59%) shared this opinion.

Strikingly, 20% of investors globally reported that they still do not believe in investing sustainably. In Latin America alone, this proportion rose to 29%. Europe was the least sceptical region with this figure falling to 15%.

Jessica Ground, Global Head of Stewardship, Schroders, said:

“The evidence is increasingly clear that investing sustainably leads to better long-term outcomes for institutional investors.

“Therefore it is important investors face little or, better still, no challenges when it comes to adopting this approach. For example risk concerns should if anything be lower for a sustainable investment approach, as they are taking a forward-looking approach to significant risks such as climate change which simply aren’t captured by traditional risk measures. 

“On the subject of performance our own in-house work shows that more sustainable companies maintain their returns on capital for longer, making them attractive investments.

“It is encouraging that on the whole asset owners are increasingly recognising the importance of investing sustainably, but clearly more needs to be done for investors globally to adopt this approach.”

Please click here to view the full report.

*The report was commissioned by Schroders and undertaken by independent research agency, CoreData Research, and studied institutional investors across North America, Europe, Latin America and Asia. The 500 respondents were interviewed during June 2017 and represent a variety of institutions, including pensions funds, foundations, endowments and sovereign wealth funds.

**Sustainability in this study was defined as a ‘forward-looking, holistic approach to investment. There are various styles of sustainable investing, including full integration, exclusionary screening and best-in-class investing’.

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