Federated Hermes says that active versus passive ESG investing increased in 2021 according to its latest ESG Investing Survey.
The survey of US financial advisors, high-net-worth individuals and institutional investors finds that investment allocators indicated a strong preference for active management relative to passive approaches when considering ESG investments.
Institutional investors report a decrease in passive ESG investments, from 22% in 2020 to 16% in 2021 while some 48% of advisors reported using actively managed investments, up from 31% in 2020. Among high-net-worth individuals, 39% are using various types of active ESG investments, and their use of passive declined from 37% in 2020 to 22% in 2021.
95% of financial advisors also say that their clients have asked them about ESG or responsible investing, up from 90% in 2020. More than 61% of advisors indicated they are including ESG-related considerations when recommending investments for their clients’ portfolios this past year, up from 46% in 2020.
The survey also states that COVID has elevated social and governance issues. Respondents place general importance on corporate governance (88%) and companies’ consideration of stakeholders (86%). The importance in relation to investment risk of social factors is most prominent among advisors and institutions followed by high-net-worth individuals with 74% of all respondents noting a perceived increase in the importance of diversity, equity and inclusion in the past year. Respondents also indicated a perceived increase in governance topics, including data privacy and security, which at 78% was the foremost growing concern among investors followed by supply chain resiliency (71%).
“With just over a third of institutions and advisors having implemented an ESG-integrated strategy into their investment process, nearly half of respondents said they were considering doing so,” said Mary Green, client portfolio manager for ESG. “We know that investment allocators are becoming more sophisticated about ESG in equity investing and we believe that as ESG investing becomes fundamental investing that asset allocators will look for fixed-income options for their portfolios.”
“ESG is increasingly important for investment professionals as their clients, boards and investment committees are asking for more insights and options. At the same time, institutional investors continue shifting their focus toward ESG alignment with their organizational values,” said Anne Kruczek, head of the Responsible Investing Office. “Evolving investor viewpoints highlight the continued importance of monitoring ESG-related considerations and their potential impact on investment opportunities and risks.”