Fewer investors confident about ESG returns

There has been “a dramatic drop” in the number of institutional investors who are confident that responsible investment provides better financial returns.

Hermes Investment Management – a firm that puts a strong emphasis on environmental, social and governance (ESG) elements in its own strategies – found that fewer than half of the investors surveyed believed companies that focus on ESG produced better long-term returns.

This is a fall from 56% in Hermes’s annual Responsible Capitalism Survey last year, to 46% this year.

In spite of the fiduciary duty of pension funds to maximise retirement incomes for beneficiaries, 33% of respondents felt significant ESG risks with financial implications were not a reason to reject an otherwise attractive investment.

The findings, taken from a survey of 104 investors, also showed 86% believed fund managers should price in corporate governance risks as a core part of their investment analysis. 

Saker Nusseibeh, chief executive of Hermes Investment Management, said many institutional investors still viewed ESG as a “tick-box exercise” to keep risk managers happy rather than “part and parcel of building a better future for retirees”.

Nusseibeh said: “The link between ESG considerations and financial value creation needs to be more clearly recognised. Companies that can adapt to social and environmental change are likely to deliver better long-term results for shareholders.”

As example, he said companies that harness big data to make industrial processes more efficient were in a better position than companies relying on “old and wasteful practices”.

He also said companies that treat their staff well have a more productive workforce.

He added: “I believe investors are looking at this in reverse and need to consider their role as long-term stewards of capital and in shaping society. Investment managers play a key part in holding companies to account.

“It is in their gift to shape a better future for retirees, and not by beating a benchmark, but by influencing the way companies behave.”

©2017 funds europe

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