Schroders annual Institutional Investor Study shows that barriers remain to ESG investing among institutional investors, especially in the US.

Schroders study surveyed 770 institutional investors with $27.5 trillion in assets and finds that performance concerns persist for US investors with 58% of US institutional investors saying performance is a hindrance to investing sustainably, compared to 53% of their global counterparts with 70% of respondents saying evidence of improved financial performance is important or very important to them when investing sustainably.

51% of respondents noted the lack of transparency and reported data as a challenge to investing in sustainable solutions. Additionally, the study found:

• When asked what would encourage greater investment in sustainable strategies, 68% were hoping to access more quantitative evidence about the financial considerations of investing sustainably.
• Fifty nine percent of investors responded that enhanced reporting and transparency from asset managers is very important to them when investing sustainably.
• Consistent and comparable data points across managers also ranked highly, with nearly three quarters of respondents (70%) emphasizing this as important or very important when investing sustainably.
• Regarding the biggest challenges with investing sustainably, 47% of respondents identified the lack of consistency with disclosures and reporting frameworks as a key issue and 43% of respondents noted greenwashing, due to a lack of clear, agreed definitions on what sustainable investment is, as an additional problem.

For those looking to invest sustainably, ESG integration is the preferred approach, with 63% of respondents selecting this as their top choice. This was followed by positive screening (focusing on ‘best in class’ companies and investments) at 60%. At the same time, investors report that they are prepared to scrutinize how their investments impact the environment and society, and increasingly want to quantify and account for those impacts.

Marina Severinovsky, Head of Sustainability, North America, comments:

“As the performance of naïve, passive ESG strategies falters and the regulators circle the wagons, sustainable investing is at a critical juncture. Investors are clear that they need more quantifiable evidence of the value and impact of ESG, and more clarity and transparency into how this investing is practiced and measured.”