Institutional investors yet to fully embrace ESG, says new research

Global institutional investors remain early stage adopters of ESG and are yet to fully embed sustainable investments into portfolios, new research shows.

A CoreData Research global study of 800 institutional investors found only about one third (37 per cent) are ESG ‘embedders’ showing a high degree of incorporation and commitment through corporate engagement, sustainability-themed investing and impact investing.
 
The majority of investors (52 per cent) are early stage ESG ‘adopters’ deploying a combination of negative screening, positive screening and integrating ESG factors into investment decision-making.
 
“While institutional investors increasingly incorporate ESG considerations, many are at the first level of adoption and yet to fully embed it into the investment process,” says Craig Phillips, head of International, CoreData Research. “We have observed that many institutional investors rely upon in- house ESG capabilities and resources and this may be restricting the range of strategies and skillsets available to them. For these institutional investors, asset managers can act as vital external facilitators through the provision of more sophisticated and targeted ESG strategies.”
 
Of those ESG ‘adopters’, six in 10 (61 per cent) say they integrate ESG factors into investment decision-making, half (50 per cent) use negative screening and 45 per cent make use of positive screening. Of those ESG ‘embedders’, 38 per cent use corporate engagement and stewardship, 37 per cent invest in themes or assets specifically related to sustainability and 36 per cent target investments with the aim of generating a positive social and environmental impact.
 
Despite such early stage adoption, the study also underlines how important sustainability has become in the eyes of investors. Just 11 per cent of institutional investors surveyed do not make any use of ESG.
 
European investors are leading the sustainability charge. As part of the global study, CoreData created a summary indicator to gauge regional levels of engagement with different ESG strategies. Using a 0-10 scale, Europe has the highest score of 5.1 and is the only region sitting in the ESG ‘embedding’ category.
 
At the other end of the scale, North America records the lowest score of 3.6 (compared to a global average of 4.2), placing it firmly in the ESG ‘adoption’ category.
 
“The European governmental and regulatory framework may help explain the stronger level of ESG incorporation,” adds Phillips. “While European regulators push for greater ESG disclosure from investors, Europe is playing a leading role in the fight against climate change. This drive seems to be impacting investor attitudes towards sustainability.”