Institutional investors have increased sustainable and impact investing activity by 81% over the past four years overall, with significant variation by investor type and region, according to a Cambridge Associates survey released Monday.
The biennial client survey found 65% of 144 respondents actively engage in sustainable and impact investing, compared with 61% in 2020 and 36% in 2018. The 2022 survey for the first time included family offices and high-net-worth individuals.
Family offices were included this time because it is a growing area of interest across the firm's private clients, "especially as they think about building a lasting family legacy," said Tom Mitchell, managing director and a partner at Cambridge, in an email. The firm has seen "a real uptick in the number of families who have outsourced their private investment programs" and with an emphasis on allocating with a socially and/or environmentally impactful lens," Mr. Mitchell said.
Foundations and endowments reported the highest rates of integration of sustainable and impact investing at 73% and 69%, respectively, compared with 52% for family offices and high-net-worth individuals.
Institutional investors outside of the U.S. invest more of their portfolio, with one-third reporting that more than half of their long-term portfolios are allocated to sustainable and impact investments. By contrast, more than half of U.S. respondents reported less than 10% allocated to such investments.
Mr. Mitchell sees that picture changing. "Europe has a more defined regulatory framework for ESG so we expect to see those types of numbers, which are encouraging. I think our U.S. clients are trending that way," he said, and some of their American foundations that have been leading in impact investing "are more aligned with what you expect to see in Europe."
Climate change and resource efficiency were the most common focus areas for respondents engaging in sustainable investing, with 77% investing in those themes, compared with 38% in the 2018 survey. Other themes mentioned were investing in diverse managers, and social and environmental equity.
Of the institutions implementing sustainable and impact investing strategies, 51% have more than 5% of their long-term investment pool allocated to them, and 88% increased their allocations over the past five years. For more than 90% of those respondents, financial results were the measure of success for their sustainable investing programs.
Of the respondents not currently engaging in sustainable and impact investing, 45% anticipate doing so, and among all respondents, 90% said they plan to increase allocations over the next five years.
Mr. Mitchell said clients have been active in private markets, "where we see some of the highest impact opportunities." But in the current market environment, the firm also expects to see allocations increase in more liquid asset classes.
The continued expansion of sustainable and impact investing "reflects a growing recognition that these factors are material to investment decision-making and long-term portfolio outcomes," said Liqian Ma, global head of sustainable and impact investing research, in a news release about the survey.