The adoption of environmental, social and governance (ESG) integration remains strong amongst global institutional investors, while a significant group has also placed greater emphasis on ESG considerations as a result of the Covid-19 pandemic, according to the 2021 RBC Global Asset Management (RBC GAM) Responsible Investment Survey.
The 2021 survey highlighted that while ESG adoption remains near peak levels amongst institutional investors globally, there is a sizable group of institutional investors (29 per cent) who have placed greater emphasis on ESG considerations as a result of the Covid-19 pandemic. These investors are also the most vigorous supporters of ESG as an enabler of investment performance, as nearly all of this group (97 per cent) believe ESG integrated portfolios are likely to perform as well or better than non-ESG integrated portfolios, a significant difference compared to the overall global respondents who said the same (83 per cent).
Among this same group of investors who have strengthened their commitment towards ESG incorporation as a result of the pandemic, 80 per cent believe ESG integration helps generate long-term sustainable alpha (versus 51 per cent of the total respondents), and 88 per cent believe that ESG integration helps mitigate risk (versus 61 per cent of the total respondents). In addition, this group had the strongest opinions on the diversity of corporate boards, with 70 per cent saying board gender diversity targets should be adopted (versus 47 per cent of the total group).
While the number of investors who use ESG appears to have plateaued over the past several years, there remains a geographic divide when it comes to adopting ESG principles. European investors remain most committed to ESG adoption for the fifth straight year, with 96 per cent of European respondents using ESG in their investment approach. In contrast, US investors remain the most skeptical, with just 64 per cent of respondents using ESG. Although a strong majority of Canadian investors adopt ESG principles, this year saw a slight decrease, as 81 per cent of respondents said they used ESG principles – still a strong majority but down from 89 per cent last year. Asian investors continue to show an increase in ESG adoption, with 76 per cent of respondents using ESG principles this year, compared with 72 per cent in 2020.
“The findings suggest that for the most ESG committed investors, the Covid-19 pandemic has highlighted the critical importance of hardwiring environmental sustainability and social equality into their investment process,” says My-Linh Ngo, Head of ESG Investment and Portfolio Manager at BlueBay Asset Management LLP. “The pandemic has impacted governments, companies and individuals in unprecedented ways, and it will continue to reshape how society and the economy operates going forward. We think this presents a unique opportunity for investors to review and recalibrate how they incorporate ESG considerations into their investment practices.”
“Over the past five years, our data has clearly demonstrated that institutional investors are convinced of the merits of ESG adoption, and are committed to incorporating ESG in their investment approach to help mitigate risk and generate long-term sustainable alpha,” says Melanie Adams, Vice President and Head of Corporate Governance and Responsible Investment at RBC Global Asset Management. “In a year where ESG risks such as Covid-19, high profile cyber breaches and climate-driven weather events dominated headlines, it will be interesting to see how perceptions toward ESG will continue to evolve.”
