Increasing institutional investor awareness of environmental, social and corporate governance factors will come at the expense of investment opportunities, a new survey of institutional investors found.
In response to a Hermes Investment Management survey, “Responsible Capitalism,” 71% of institutional investors across the U.K. and Europe said company retirement programs will reject more investment opportunities over the next five years because of ESG risks. More than three-quarters (79%) of respondents said significant ESG risks with financial implications are good enough justifications for rejecting an otherwise attractive opportunity.
The survey found 55% of respondents think companies that focus on ESG issues — in particular corporate governance — produce better long-term returns for investors.
Respondents to the survey also had a requirement of their money managers: 90% said managers should price in corporate governance risks as a core part of their investment analysis.
“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,” said Saker Nusseibeh, CEO at Hermes Investment Management, in a news release. “This clearly demonstrates an awareness and appetite for ESG which is larger than many of us perhaps thought.”
The survey looks to benchmark institutional investors' views on responsible investment on a yearly basis. Respondents were 108 institutional investors, with 75% from the U.K. and 25% from Europe.