Federated Hermes has released a survey showing the growing importance of ESG among US financial advisors, high-net-worth individuals and institutional investors.
The 2020 Federated Hermes’ ESG Investing Survey found that two-thirds of investors are scrutinizing social factors as the pandemic put a spotlight on topics such as public health, pay equity and working conditions. In addition, 46% of investors believe that good governance is very important, while 88% consider environmental factors in their investment decisions.
“As the pandemic endures, a majority of institutions, financial advisors and high-net-worth individuals are focusing on fundamental ESG risks and opportunities, which have evolved into the mainstream,” said Mary Green, client portfolio manager. “Our survey showed the importance of responsible-investing credentials among investors, which is in line with Federated Hermes’ conviction that responsible investing is the best way to create wealth over the long term.”
As part of the study, 90% of financial advisors reported that they had clients asking about ESG. The majority of financial advisors considered responsible investing when making recommendations to their clients, indicating that ESG risk evaluation is becoming a key part of investment programs.
The survey further found that investors are becoming more sophisticated about ESG investing. Investors are moving away from negative screening strategies that exclude certain investments. Instead, 64% of high-net-worth investors and 74% of institutions focus on positive screening strategies, which is the inclusion of certain investments based on ESG data. Institutional investors (64%) lead the way in understanding the value of long-term engagement with portfolio investments, and 48% of institutional survey respondents said active strategies are their primary way of finding ESG investments.
Social rising—About two-thirds of investors agree that in the wake of the global pandemic, social factors have become more important when analyzing investment risk.
Governance still rules—46% of investors place the highest importance on governance.
Considering legacy—88% of institutional investors utilize responsible investing considerations.
Active management in demand—48% of institutional investors surveyed are using actively managed strategies to meet their ESG objectives, and positive screening is on the rise.
Looking to the future of ESG investing, the survey showed that fixed-income is likely the next frontier, as more than one in five institutional asset owners plan to add ESG-integrated high-yield fixed-income allocations in the next 12 months. Responsible-investing credentials are catching up to returns in terms of how investors prioritize evaluating new investments, with 70% of financial advisors citing responsible investing credentials as an important consideration, falling just behind overall performance history of a strategy.