As the march of ESG continues apace in the investment arena, new research reveals that nearly two thirds of institutional investors believe ESG strategies will become the norm in the next five years.
Paris-based Natixis Investment Managers’ ESG cross-survey report – which uses data from its global surveys of financial professionals, individual investors, institutional investors and professional fund buyers – also shows that 55 percent plan to increase their allocation to ESG during 2019.
The study finds a shared view that there is alpha to be found in ESG strategies – 56 percent of institutional investors believe this – with institutions also believing the approach can mitigate exposure to governance and social risks not otherwise captured.
Natixis chief executive Jean Raby says in a statement: ‘As an active manager, we view ESG factors as inherently part of long-term, active investment strategies. Investors agree. ESG-related investment strategies are now recognized beyond the narrow scope of negative screening with which it was once associated. Demand for ESG-related strategies is outpacing supply.’
But the report notes: ‘As it moves out of the narrow scope of negative screening once associated with socially responsible investing and expands into a broad set of strategies, investors will need greater clarity and definition on how ESG is implemented – and why.
‘With asset managers offering strategies built on negative screening, positive screening, thematic investing, impact investing and full-on ESG integration, the industry needs to adopt a standard taxonomy that allows investors to match their motivations for implementing ESG with the strategies asset managers deliver.’
In terms of ESG approach, institutions are integrating a wide range of strategies. Most frequently, they deploy ESG integration, which makes analysis of ESG factors part of their fundamental analysis process.
Beyond this, 28 percent use negative screens to exclude investments based on poor ESG performance, while 13 percent implement best-in-class strategies that select companies based on positive ESG performance relative to peers.
Ten percent also deploy impact strategies aimed at solving key social or environmental problems, while 6 percent say they use thematic strategies to invest in trends related to global sustainability.
Raby adds: ‘As it continues to expand into a broader set of investment processes, investors will increasingly require greater clarity and definition on ESG strategies, how they are implemented, and what the benefits of ESG factors are on investment performance and on society more broadly.’
In generational terms there is a shift toward ESG among the young, with the majority (56 percent) of millennial investors and 48 percent of Generation X highlighting they believe their investments can have a positive impact on the world. In comparison, 41 percent of baby boomers and just 30 percent of the silent generation express the same view.
