Funds that contribute to a beneficial impact for people and the planet are rapidly increasing in popularity among the world’s largest investors, according to the latest release of global asset manager Schroders’ flagship Institutional Investor Study.
The firm’s research – which analysed the investment perspectives of 770 institutional investors, who are collectively responsible for USD27.5 trillion in assets and from 28 locations around the world – shows that almost half of these leading investors now have a preference for sustainable investments focused on impact.
The study, carried out in March, is an influential bellwether of the investment appetite of major global institutional investors – from corporate and public pension plans to insurance companies, official institutions, endowments and foundations.
This year’s survey found that 48 per cent are focusing on the impact of their investments – up from 38 per cent last year and just 34 per cent in 2020. Schroders says the 2022 result marks the first time that impact investing has ranked in the top three preferred approaches to sustainable investing since the firm first launched its survey in 2017.
Impact investing was a particularly popular approach among respondents in Latin America (62 per cent), followed by the UK and Europe (50 per cent) and Asia Pacific (48 per cent) – while in North America, impact investing did not make it into the top three.
Andy Howard, Schroders’ global head of sustainable investment, says: “The findings of the 2022 Institutional Investor Study are striking. More and more institutional investors want to measure, manage, and deliver impact.”
Integration of environmental, social and governance (ESG) factors into the investment process, and positive screening – where investments are only considered if they meet particular sustainability criteria – are the most popular preferences for sustainable investing overall, selected by 75 per cent and 53 per cent respectively. Demand for ESG integration is also up substantially, from 68 per cent the previous year.
According to Schroders, results from the 770 global institutional investors that were surveyed highlight four key areas: investing in the energy transition as key to increasing sustainability adoption; the journey to net zero; active ownership themes; and challenges around performance concerns and greenwashing.
Demand for more investment solutions focused on the energy transition, and the need for tangible quantitative evidence about real-world outcomes, are among other key findings from the study – along with desire for more clarity and education about the different sustainable investment options that are available, a greater push from regulators on how to approach investing sustainably, and industry initiatives such as the Net Zero Asset Managers Initiative.
More than half of investors (59 per cent) said that investment in the energy transition would encourage them to invest more into sustainable investments. In the UK and Europe and in Asia Pacific the level of interest in transition-oriented solutions was highest, at 68 per cent and 62 per cent respectively. However in North America energy transition opportunities were trumped by demand for quantitative evidence about the financial considerations of investing sustainably (60 per cent).
At the same time, almost four in 10 (37 per cent) said their organisation had committed to reaching net zero by 2050, with European investors (42 per cent) ahead of those in Latin America (40 per cent), Asia Pacific (37 per cent) and North America (28 per cent). In North America, a third (33 per cent) of investors are still exploring the transition but have not yet committed to specific targets.
Engagement, where investors actively influence corporate behaviour, continues to be an important focus for investors globally, with 59 per cent of those surveyed wanting evidence of measurable improvements for stakeholders.
This was ranked the most important component of an active ownership strategy by the study, followed by transparency on progress (53 per cent) and evidence of improved financial performance (48 per cent).
Kimberley Lewis, Schroders’ head of active ownership, says: “We are in an era of transition in many key areas, including climate change, equality, diversity and many more. Old ways of working are being upended and companies will need to adapt to thrive more than ever.”
“As active managers, we have a critical role to play in supporting that transition. Engagement is one of the important tools we can use to influence the companies in which we invest, to strengthen the long-term value of those assets, enhancing outcomes for clients, and to accelerate positive change towards a fairer and sustainable global economy.”
Governance and oversight – for example through transparency of voting and shareholder resolutions – was the most popular engagement theme for two thirds of investors at 64 per cent. Human rights – in terms of the impact companies have on workers, communities, and consumers – at 62 per cent, followed by climate action and transparency (61 per cent), completed the top three.
Climate was particularly important for investors in Asia Pacific (65 per cent) and the UK and Europe (64 per cent) while human rights and governance came up top for North America (64 per cent for both), and in Latin America human capital management – ensuring workers are supported and protected – was first, at 58 per cent.
Meanwhile, performance concerns over sustainable investments have also increased in the last year – with 53 per cent of investors citing these as a worry in this year’s survey, up from 38 per cent in 2021. According to Schroders, anxiety over performance had been consistently falling year-on-year until this year, with market conditions changing considerably due to the Russia-Ukraine conflict, rising interest rates and surging inflation.
Howard says: “Recognising concerns over tensions between sustainable investment and return goals, it’s clear that thoughtful approaches grounded in investment experience are critical. Schroders is committing significant time, resource, and expertise to developing robust and rigorous solutions to meet that need.”
Schroders was a founding signatory in 2020 to the Net Zero Asset Managers Initiative – with the firm aiming to reach net zero emissions by 2050 or sooner across all assets under management and committing to 100 per cent renewable energy globally by 2025.
The firm is a member of the Global Impact Investing Network (GIIN), a leading non-profit organisation dedicated to increasing the scale and effectiveness of impact investing. It has 350 members globally, including impact investment pioneer BlueOrchard, which is part of the Schroders Group and has been operating since 2001.
Schroders commissioned CoreData to conduct the sixth Institutional Investor Study to analyse the world’s largest investors’ key areas of focus and concern including the macroeconomic and geopolitical climate, return expectations, asset allocation, and attitudes to sustainability and private assets.
