The main findings revealed that six in ten (59%, 62% in UK) financial professionals, 57% (77% in UK) of professional fund buyers, and 56% (57% in UK) of institutional investors believe there is alpha to be found in ESG, whilst also believing these strategies can mitigate exposure to governance and social risks not captured in traditional analysis. More than half (56%, 50% in UK) of individual investors believe that companies that demonstrate a higher level of integrity will outperform those that do not.
Institutional investors continue to lead the way in the adoption of ESG strategies in their portfolios. Almost two thirds (66%, 81% in UK) believe ESG will become standard practice in the next five years, up from 60% in 2017. Among those who implement ESG today, 46% (52% UK) say they believe this analysis is as important to their investment process as traditional fundamental analysis.
However, the survey also demonstrated the need for more advanced reporting and measurement. More than two thirds of financial professionals (68%, 71% in UK) said they would be more likely to recommend ESG products if there was better data and reporting available.
"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 recognised beyond the narrow scope of negative screening with which it was once associated. Demand for ESG-related strategies is outpacing supply. 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," said Jean Raby, CEO of Natixis Investment Managers. "There are some clear steps to take, including better taxonomy and labelling standards across the industry, and more transparency around climate and ESG reporting."
Professional investors leading the charge
Institutions are integrating a wide range of ESG strategies, most frequently employing ESG integration, which makes analysis of ESG factors part of their fundamental analysis process. ESG investing is also making in-roads in wholesale markets, where 65% of fund buyers say it is part of their investment practices. In this field, fewer professional fund buyers in the UK rely best-in-class approaches (3.3% in the UK compared to 10% globally), active ownership (7% both in the UK and globally) and thematic investing (7% in the UK, 6% globally). Larger numbers employ impact investing (10% in the UK and globally), ESG integration (17% in the UK, 18% globally) and exclusionary screening (23% UK, 14% globally).
Andrew Benton, head of Northern Europe at Natixis Investment Managers, commented: "As with most new innovations in investing, institutional investors have been leading the charge on ESG. Six in ten already incorporate ESG in their portfolios and the majority (55%, 49% in the UK) plan to increase allocations in 2019. As they face greater reporting requirements of their own, they will increasingly come to lean on the investment industry to provide the measurement and reporting they need, which will be to the benefit of investors across the board."
Younger investors lead the way among individuals
In contrast to older generations, the majority (56%) of Millennial investors and half (48%) of Generation X before them said they believe their investments can have a positive impact on the world. Only 41% of Baby Boomers and 30% of the Silent Generation said the same.
Values hold sway on ESG
Across the investor groups surveyed, the findings reveal the importance of aligning investments to values, a particularly important consideration for individual investors - four in five (81%, 80% UK) said the ability to customise their investments to meet their personal values was important. This is not however at the detriment of returns, with more than half (50%) who say they are not willing to give up investment performance in order to align their assets and values. Almost three in five (59%, 60% UK) institutional investors and more than half (52%) of professional fund buyers globally and a third in the UK (35%) also identified the need to align investment strategies to organisational values as the primary reason for integrating ESG.
Environmental considerations edge out Governance and Social
For professional investors globally, environmental considerations continue to be the primary ESG consideration. When asked to identify the factors they were most focused on incorporating within their investment strategy, more than three quarters (76%, 85% UK) of institutional investors selected environmental, followed by governance (70%, 82% UK) and social (61%, 78% UK). This focus is reflected by professional fund buyers for whom environmental factors are the primary consideration for four-fifths (80% globally and in the UK), followed by governance (73%, 75% UK) and social (65%, 55% UK).