Portfolios that integrate environmental, social and governance factors are likely to perform as well or better than non-ESG investments, say 90% of institutional investors.
The third global survey of 542 assets owners and investment consultants by RBC Global Asset Management showed that performance has become a key selling point for ESG-integrated strategies, with 38% of respondents believing that it helps to generate alpha. In the 2017 survey, 24% said they see ESG as a source of alpha. Also in 2018, 20% said they do not view ESG as a source of alpha, down from 46% in 2017. The remaining 42% of respondents said they are not sure about ESG's value as an alpha source. The comparative figure for 2017 was 30%.
The survey also found that responsible investing is increasingly viewed as a fiduciary responsibility among investors, with 54% agreeing. RBC GAM said that figure was more than double the percentage who last year said it was a fiduciary duty.
European institutional investors lead the way when it comes to believing it is a duty to incorporate ESG factors into the investment approach, at 63.5%. That compared to 57.9% in Asia, 57.7% in Canada, 48% in the U.S. and 45.9% in the U.K. believing the incorporation of ESG is a duty.
When it comes to approaches taken to ESG, engagement remained the most popular method according to 45.1% of respondents, up from 43.3% last year. A further 17.7% think both engagement and divestment are equally effective, compared with 16.2% last year; 8.1% think divestment is the best approach, up from 6.3% last year; and 8.1% think neither approach is effective, down from 10.9% in last year's survey. The remainder said they are not sure.
The survey also found that ESG goes beyond equities, which was the primary focus for 84% of institutional investors. However, 60% said ESG is also incorporated into fixed-income portfolios, 43% in real estate, 36% in infrastructure and 34% in alternative assets.
"This new data confirms that the majority of institutional investors and consultants have either adopted ESG principles or are actively looking at how to do so," said Judy Cotte, vice president and head of corporate governance and responsible investment at RBC Global Asset Management, in a statement accompanying the survey report. "Importantly, many institutional asset owners now believe they have a duty to consider a responsible investing approach. This ongoing shift has significant implications for how large institutional asset pools are allocated, as well as the advice and service provided by consultants and asset managers."
The survey results are available on RBC GAM's website.