About 90 percent say fund managers should price ESG risks into investment decisions alongside financial metrics
More than half of institutional investors say companies that focus on ESG issues will perform better over the long term, while almost three quarters believe pension funds will increasingly turn down investments involving ESG-related risks, according to a survey by Hermes Investment Management.
The survey shows that 71 percent of institutional investors say pension funds will increasingly focus on ESG issues over the next five years and 79 percent of them say that ESG risks are sufficient reason to turn down an investment opportunity, particularly when the risks may have financial impacts.
Some 55 percent believe a focus on ESG issues, in particular on governance, improves a company’s long-term outlook, the survey shows. At the same time, 90 percent of those surveyed say fund managers should price corporate governance practices into their investment analyses, alongside financial metrics.
‘The Responsible Capitalism Survey is not just a warning to companies that they will potentially lose out on investment capital, it is also a word of warning for the fund management industry,’ Hermes Investment Management CEO Saker Nusseibeh says in a press release. ‘Our clients are clearly telling us that we need to up our game in terms of how we assess the corporate governance of our investments. Investment managers should engage with companies and analyze their governance structure, attitude to risk and systems for accountability. This is due to the importance of considering an investment’s ESG risk profile.’
The diversity and experience of a company’s board of directors is the most common ESG concern expressed by investors, with 86 percent of those surveyed calling it their greatest ESG concern. Board independence came a close second, cited by 85 percent of respondents. Having an independent CEO and chairman came next, at 76 percent, followed by remuneration policies, at 71 percent. Gender diversity on a board was only cited as the greatest concern by 27 percent of respondents.
