New research from RBC Global Asset Management shows that three out of four (75%) institutional investors now incorporate ESG principles into their investment process, up from 70% last year.
An increasing number of institutional investors believe ESG integrated portfolios are likely to perform as well or better than non-ESG integrated portfolios compared to 2019, going up from 90% to 97.5% in Canada, from 92% to 96% in Europe and from 78% to 93% in Asia.
However, while most markets are embracing ESG, investors in the US appear more sceptical.
A growing majority of institutional investors are convinced of the merits of ESG adoption in their investment approach."
Only 74% of US respondents believe ESG integrated portfolios perform as well or better, down from 78% in 2019, while a quarter believe they perform worse.
Impact of covid-19
The coronavirus pandemic has helped boost interest in ESG, with investors becoming more aware of environmental and social factors.
More than a quarter of institutional investors (28%) said covid-19 has made them place more importance on ESG considerations.
Meanwhile, more than half of institutional investors are looking for companies to disclose more details about worker safety, employee health benefits, workplace culture and other social factors due to the pandemic.
"As we analyse the trends in our year-over-year survey data, we have found that a growing majority of institutional investors are convinced of the merits of ESG adoption in their investment approach," said Melanie Adams, vice president and head of corporate governance and responsible investment at RBC Global Asset Management.
"A new trend to follow going forward is how the Covid-19 pandemic will influence investors. In this year's data we are already seeing a greater demand for disclosure on employee health and safety and we expect that the effects of Covid-19 will have implications on investor sentiment for years to come."
Support for diversity and inclusion targets for corporate boards remains strong. More respondents favoured board minority diversity targets (44%) than opposed them (28%).
The same was also true for gender diversity targets, with more favouring them (49%) than opposing them (26%).
Respondents were also asked to rank the ESG issues they are concerned about when investing. Anti-corruption was ranked first globally, followed closely by climate change and shareholder rights, which tied for second.
Habib Subjally, senior portfolio manager and head of global equities at RBC Global Asset Management (UK) said by understanding the complexities of the growing range of ESG factors on corporate value creation, investors can make better long-term investment decisions.
"What is notable in the results this year is that a vast majority of institutional investors are interested in how climate-related considerations are factored into their investments," he said.
"We think this presents an important opportunity for asset managers, financial advisers and consultants to speak with their clients about how climate-related considerations can play a part in their investment goals."
This article was first published by our sister title Investment Week
Fund houses commit to cut emissions by 2050