Anti-corruption is the top ESG concern for institutional investors according to RBC Global Asset Management’s latest Responsible Investment Survey.
The survey outlines how the adoption of ESG integration continues to grow globally, but US institutional investors are becoming more skeptical of its performance merits. Compared to 2019, there is an increase in the percentage of institutional investors who believe ESG-integrated portfolios are likely to perform as well or better than non-ESG integrated portfolios in Canada (97.5% up from 90%), Europe (96% up from 92%) and Asia (93% up from 78%).
However, respondents in the US are more skeptical of the performance of ESG integrated portfolios, as only 74% (down from 78% in 2019) believe they perform as well or better, and over a quarter of US respondents (up from 22% in 2019) believe ESG integrated portfolios perform worse.
The ongoing COVID-19 pandemic is beginning to influence investors’ views about ESG. While the importance placed on ESG considerations hasn’t changed for the majority of investors, over 28% said COVID-19 has made them place more importance on ESG considerations, making this a notable factor that is new in 2020. Also of note, 53% of 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.
Other key findings from the survey include:
• Investors are paying closer attention to supply chain risk during the pandemic: For the 36% of respondents who are more closely focused on specific ESG factors due to the pandemic, the top three factors cited were supply chain risk (43%), climate risk (37%) and workplace culture (31%).
• Support for diversity and inclusion targets for corporate boards remains strong: During a time with renewed focus on Black Lives Matter and racial justice issues, more respondents favoured board minority diversity targets (44%) than opposed them (28%). Similarly, more respondents favoured board gender diversity targets (49%) than opposed them (26%).
• Investors plan to focus more on impact investing: Since last year, there’s been an increase in the number of investors who expect to allocate funds to impact investing solutions. This year 40% of investors said they plan to allocate more money to impact investing products in the next 1 – 5 years, an increase from the 28% who said the same a year ago. European respondents expressed significant interest, with 63% planning to allocate money to impact investing products in the near future.
• European investors lead on climate risk in investment policies: Globally, about 72% of respondents responded “no” or “not sure” when asked if their investment policy addresses climate risk. The significant outlier was Europe, where nearly 65% of respondents addressed climate risk in their investment policy.
• Investors demand more climate-related investment solutions: Over 80% of survey respondents across US, Canada, Europe and Asia responded “no” or “not sure” when asked if there are sufficient climate-related investment products available. When looking at different climate-related strategies, investors are most interested in the following: renewables (55%), carbon neutral or low carbon strategies (54%), transition strategies (48%) and fossil fuel free strategies (36%).
• Anti-corruption is a top concern: The RBC GAM survey asked respondents to rank which 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.
“We are seeing investors concerned with a wide range of ESG factors, from anti-corruption to climate change and shareholder rights. By understanding the complexities of these factors on corporate value creation, investors can make better long-term investment decisions,” said Habib Subjally, Senior Portfolio Manager and Head of Global Equities at RBC Global Asset Management (UK) Limited. “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. We think this presents an important opportunity for asset managers, financial advisors and consultants to speak with their clients about how climate-related considerations can play a part in their investment goals.”