80 Percent of Asset Owners Now Have an ESG Component in Their Investment Strategies
The survey also found that 77 percent of respondents said they invested in ESG strategies because such factors play a role in a public company’s broader financial performance. While this growing integration of ESG strategies is a good sign, active ownership remains a critical part of the comprehensive strategy, as findings show that 78 percent of asset owners have some level of ESG engagement with the companies in which they invest taking ESG investment beyond negative screening.
“There’s a collective shift in the institutional investment world right now that has asset owners and managers thinking differently about the full implications of their investments,” said Chris McKnett, head of global ESG business at SSGA. “For the majority, the question is no longer, ‘should we consider ESG as part of our mandate,’ the question is ‘how are we actively pursuing opportunities with our investments that help us reach our financial goals, while encouraging change in the process?’”
Expectedly, all investment approaches face some type of challenges. Nearly two-thirds of respondents (57 percent) say it’s difficult to benchmark performance against peers. Fifty-six percent said the accurate assessment of external ESG asset managers was a key issue. Nearly half (49 percent) of asset owners say that fees and expenses are the main barriers to further incorporating ESG into portfolios, followed by a lack of internal knowledge on the matter.
“In the last four or five years, we’ve seen a marked increase in the level of awareness and interest in ESG at the institutional level, which is extraordinarily promising,” said Rakhi Kumar, head of ESG Investments and Asset Stewardship at SSGA. “There’s a broader appreciation of the notion that good governance translates into better management of areas such as a company’s carbon footprint, as well as how management engages with the workforce. The companies that operate this way, we believe, are better quality investments that yield better performance long term.”
Other Key Findings:
- Comparing ESG Appetites by Region – 40% of investors in Europe and 38% of investors in the US have 25–49% of their investments with ESG allocations. In Asia-Pacific, half of investors have less than 25% of investments with ESG allocations
- A large majority of respondents (69%) say that pursuing an ESG strategy has helped with managing volatility.
- Despite many surveyed investors expressing satisfaction with the performance benefits of their ESG strategies, overall ESG exposure remains low — on average only a third of adopters’ investments incorporate ESG criteria. Our results suggest that investors expect that proportion to grow over the next two years — to around 40% of their portfolio.
- 84% of respondents are satisfied or very satisfied with the financial performance of their ESG strategy.
The full survey report can be viewed here.
State Street Global Advisors surveyed 475 asset owners in the UK, France, Germany, Italy, Switzerland, Nordic countries, the Netherlands, Korea, Singapore, Japan, China, Hong Kong, Australia and the US. Respondents included public and private pension funds, endowments, foundations, family offices, sovereign wealth funds, central banks and supranationals. The survey was conducted in December 2016 and January 2017.
For nearly four decades, State Street Global Advisors has been committed to helping financial professionals and those who rely on them achieve their investment objectives. We partner with institutions and financial professionals to help them reach their goals through a rigorous, research-driven process spanning both active and index disciplines. We take pride in working closely with our clients to develop precise investment strategies, including our pioneering family of SPDR ETFs. With trillions* in assets under management, our scale and global footprint provide industry leading access to markets and asset classes, and allow us to deliver expert insights and investment solutions.
State Street Global Advisors is the investment management arm of State Street Corporation.
*Assets under management were $2.47 trillion as of December 31, 2016. AUM reflects approx. $30.62 billion (as of December 31, 2016) with respect to which State Street Global Markets, LLC (SSGM) serves as marketing agent; SSGM and State Street Global Advisors are affiliated.
State Street Global Advisors
One Lincoln Street
Boston, MA 02111 - 2900
1: 4/15/2017: Survey respondents include private and public pension funds, endowments, foundations and official institutions.