Institutional investors would reject attractive investments that hold significant environmental, social and corporate governance (ESG) risks.
A fund management firm claims the finding is a watershed moment for responsible capitalism.
Over three-quarters (79%) of institutional investors surveyed would consider significant ESG risks with financial implications as a reason to reject an attractive investment, according to Hermes Investment Management's first Responsible capitalism survey.
Out of 108 investors surveyed, 71% believe that company pension schemes will reject more investment opportunities over the next five years because of ESG risks.
Overall, 55% of respondents think companies that focus on ESG issues produce better long-term returns for investors, according to the research conducted in September among institutional investors in the UK and wider Europe.
Corporate governance also proved a significant concern, with 90% of institutional investors believing fund managers should price in corporate governance risks as a core part of their investment analysis, alongside financial metrics.
Diversity was also highlighted, with over 85% of respondents identifying a range of diverse professional experiences at board director level and an independent board as important when looking to make an investment.
Saker Nusseibeh, chief executive for Hermes Investment Management, which has £27.4 billion (€34.9 billion) in assets under management, says: "I believe that these findings indicate that responsible capitalism in the pensions industry is at a tipping point. Over two-thirds of institutional investors would reject an otherwise attractive investment, and a staggering 90% say that corporate governance risks should be priced in. This clearly demonstrates an awareness and appetite for ESG, which is larger than many of us perhaps thought.
"Our clients are clearly telling us that we need to up our game in terms of how we assess the corporate governance of our investments. Investment managers should engage with companies and analyse their governance structure, attitude to risk and systems for accountability."
Hermes is owned by the BT Pension Scheme, one of the largest UK pension funds, and has a specialist ESG business.
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