COVID-19 sharpens investor focus on sustainability

The coronavirus pandemic has sharpened institutional investor focus on sustainable investing, with 52% of respondents to a survey citing it as a more important consideration than it was pre-COVID-19.

That view was particularly strong among European investors, 62% of which now attach a greater significance to sustainable investing due to the COVID-19 pandemic.

Schroders' latest "Institutional Investor Study," covering views from 750 global investors with $26.8 trillion in assets, also found that investors are less concerned than ever that investing sustainably may hamper performance.

Thirty-eight percent of respondents expressed concerns over performance when incorporating sustainable investing into portfolios, down from 45% last year and from 48% in the firm's 2019 study.

However, challenges to sustainable investing remain, according to respondents. Greenwashing was the biggest issue for investors, at 59%, down slightly from 60% in last year's survey. The ability to measure and manage risk when investing with a sustainable focus worries 46% of investors, up from 33% in 2020. The lack of transparency also increased as an obstacle, for 53% of investors vs. 48% last year.

Investors showed a preference for focusing on environmental aspects of sustainability when looking for strategies, at 47% vs. 40% in 2020. Broad sustainability-focused strategies appealed to 39% of investors this year, vs. 33% last year; while having a specific sustainability goal such as infrastructure is the strategy of choice for 38% of investors, up from 34% last year. Health and wellness-related strategies also gained in popularity, with 37% of investors seeking this type of strategy vs. 29% in 2020.

Schroders also surveyed respondents on their investment outlooks for 2021.

Return expectations have risen over the past year as investors begin to see beyond the pandemic, with 82% of respondents expecting annual gains of at least 4% over the next five years, up from 72% of respondents in 2020.

Almost half of investors (47%) expect their average annual returns to surpass 6%, up from 35% a year ago; and the proportion of investors that think they could reach returns of more than 9% also increased, to 13% from 5% in the 2020 survey.

In terms of the macroeconomic factors that worry investors in relation to their potential to impact on investment performance for the rest of the year, world crises such as the pandemic was the top investor worry, for 61% of respondents, although that dropped from 70% last year. Concerns over a global economic slowdown are on 58% of investors' minds, down from 79% in 2020; while the tapering of monetary policy is a concern for 51% of respondents, up significantly from 23% last year.

The global survey was conducted in February and March. Among the 750 institutional respondents, 275 were based in Europe including the U.K. and South Africa, 205 were in Asia-Pacific, 204 were in North America and 66 were in Latin America.

Schroders has $785.1 billion in assets under management.