Institutional investors who focus more on sustainability appear to be more confident in achieving their return expectations than those who do not.
Over half (59%) of institutions who focus on sustainability were at least reasonably confident of meeting their expectations, compared to 37% of investors who did not prioritise investing sustainably.
Schroders surveyed 650 institutions globally for its ‘Schroders Institutional Investor Study 2018’.
However, the findings were not all positive for sustainable investing. Almost a third of investors (32%) said that the sustainability focus of their allocations had little to no influence on their decision-making, which according to Schroders meant sustainable investing remained a “minor factor” in the investment process of the institutions it surveyed.
There was a “mismatch” between the perceptions of the importance of sustainability and what is actually happening, the firm said.
More important to the surveyed institutions – who collectively manage $24 billion – were factors such as strategic asset allocation, fund manager track record, anticipated return and risk tolerance.
However, sustainability was a bigger focus for larger institutional investors, Schroders said.
Schroders also found that investors who placed greater emphasis on sustainability tended to have a longer-term investment horizon, more investment confidence and prioritised risk-adjusted returns. Some 32% of those that had holding periods of at least five years stated that sustainability was a significant influence. This compares to 23% of investors whose investment horizon was between three and five years.
Despite Schroders finding of mismatch between perceptions and reality of sustainable investing, the survey also found that just under three quarters of investors (74%) globally stated that investing sustainably would grow in importance over the next five years, up on 67% a year ago.
A little under half (47%) said they had increased their allocations to investing sustainably over the last five years – but over three quarters of investors (77%) admitted they found investing sustainably at least somewhat challenging. Performance concerns were at the forefront of their challenges, with 51% citing this as an obstacle to investing sustainably, up on 44% a year ago.
A lack of transparency and difficulty measuring risk were also main challenges.
Over a third of investors said that evidence demonstrating that investing sustainably delivers better returns would boost their allocations to investing sustainably. This rose to just under half (49%) for investors in North America.
Jessica Ground, global head of stewardship at Schroders, said there remained a gulf between the aspirations of institutional investors to invest sustainably, and the reality of how they prioritise the elements of investment decision-making.
However, Ground added: “Over time, this study highlights that sustainability is going to increasingly sit alongside institutional investors’ more long-standing investment priorities, although there still remain barriers to overcome to achieve this in the near term.”
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