The rapidly changing ESG environment
How are investors’ ESG priorities and practices changing? Bfinance’s recent research has shown investors believe ESG will outperform in the next three years.
We have written previously on the growing importance of Environmental, Sustainability and Governance (ESG) issues in equity investment, and the need for investors to be aware of the changing landscape. Recently, bfinance, which provides investment advice to institutional investors globally, published the results of a survey of 256 investors representing roughly US$7 trillion of assets. The results serve to highlight the pace and importance of the change, and we summarise some of the interesting points below.
- Indicative of the rate of change, 28 per cent of investors now map their portfolios against the UN’s Sustainable Development Goals (the UN is one of the leading advocates for ESG investing). This is up from just 3 per cent three years ago.
- European investors are leading the charge, with American investors trailing: 61 per cent of European investors reported that ESG considerations were of high importance to them, vs 33 per cent of Asia Pacific investors and 24 per cent of North American investors.
- Larger investors (which represent a large percentage of investable assets) are further down the path than smaller investors: 63 per cent of investors with more than $25 billion of assets reported that ESG considerations were of high importance to them, vs 38 per cent of investors with less than $1 billion.
- ESG was clearly a focus for Australian investors with 96 per cent of Australian respondents agreeing that ESG considerations were of high or moderate importance to their investment strategy. In Australia, COVID-19 has clearly accelerated the focus on ESG with over 45 per cent of Australian investors saying the pandemic has affected their investment team’s focus on ESG issues.
- As you might expect, these changes are not driven entirely by altruistic motives but reflect an expectation that careful management of ESG issues will be a driver of investment outperformance. No less than 82 per cent of respondents agreed with the statement “I believe that ESG integration will be associated with outperformance over the next three years”, and an even larger proportion agree in respect of longer timeframes.
At Montgomery, our portfolios have tended to score very favourably on ESG metrics. Nonetheless, in a changing world we are actively examining ways to further strengthen this aspect of our approach.