Active engagement and stewardship are increasingly important ways for money managers to approach the issue of sustainability, institutional investors say.
Schroders' latest Institutional Investor Study found that 59% of respondents see active company engagement and stewardship as key approaches to integrating sustainability, up from 38% a year ago. The study of 650 institutional investors, representing $25.9 trillion in assets, found that integrating environmental, social and governance factors into the investment process remains the top way of improving sustainability, at 67% up from 64% last year.
Focusing on best-in-class companies or investments, known as positive screening, was cited by 61% of respondents as an important way of driving change, up from 44% last year. Exclusion or negative screening fell in importance, to 36% from 53%.
When it comes to measuring the success of engagement with companies, respondents said transparent reporting, tangible outcomes and consistently voting against companies to drive change were key signs.
Institutional investors' focus on sustainable investment was driven by three factors:
- Alignment with corporate or internal values (58%).
- Regulatory and industry pressure (49%).
- Ability to drive higher returns and lowers risk (35%).
However, challenges remain, with 60% of respondents believing that "greenwashing" is the most significant obstacle to their sustainable investment intentions, the study said. A further 48% said a lack of transparency and reported data is restricting their ability to invest sustainably.
"Investors are asking more from their asset managers when it comes to sustainability, and those demands are becoming increasingly sophisticated," Andy Howard, global head of sustainable investments, said in a statement accompanying the study. "The evidence is consistently growing that sustainable investment and robust returns are not mutually exclusive."