Climate change has now become the main focus of shareholder engagement according to Schroders’ 2019 Institutional Investor Study.
This research found there was a marked decline in those who were cynical about sustainable investment strategies, with numbers dropping by 50 per cent in three years.
In total just one in 10 (11 per cent) global investors said they did not believe in sustainable investment, down from 20 per cent in 2017. This decline was most striking in Latin America with sceptics falling from 29 per cent to 12 per cent.
The research showed that just 10 per cent of those surveyed said their investment committees “were not comfortable” making sustainable investments. Again this was a fall from 15 per cent the year before.
The research shows that climate change has overtaken business’ corporate strategies as being the most important focus for shareholder engagement. However this global study shows accounting quality, bribery and corruption, diversity and labour rights have all increased in significance as stewardship topics.
Three out of four (75 per cent) of those surveyed said they expected this trend to continue, with sustainable investment strategies become even more important over the next five years. This figure was even higher in Europe with 84 per cent expecting this to topic to gain more prominence.
Investing sustainably still remains a challenge for investors, however, with 76 per cent stating that it was at least somewhat challenging. This is consistent with results recorded in 2017.
Performance concerns and a lack of transparency and reported data were the key issues, although difficulty measuring and managing risk also increased as a challenge for investors globally.
Institutions said that the availability of better data or evidence, demonstrating sustainable investment deliver better returns would be a key factor in encouraging them to allocate more to these strategies.
These investors also said that greater transparency and better Environment, Social and Corporate Governance (ESG)-related benchmarks were the next most important factors.
More than six out of 10 (64 per cent) of those surveyed said integrating sustainability across the investment process was the preferred method for implementing sustainable considerations. This figure rose to seven out of 10 in Europe.
However in the Asia-Pacific region the picture was less conclusive with 57 per cent of investors leaning towards negative screening, slightly ahead of the proportion who favoured full integration.
Schroders global head of stewardship Jessica Ground says: “These findings deliver the clearest evidence to date of how even the most sceptical of institutions are now recognising that investing sustainably can deliver better long-term outcomes.
“This trend is no longer confined to specific global regions; investors across all continents surveyed — including those which are often not associated with a strong sustainable focus — are increasingly convinced by the benefits that sustainable investing can deliver.”
She adds: “This trend is only going to grow over the next five years, with the likes of climate change now viewed by investors globally as the most important issue for stewardship engagement. We believe that establishing a clear understanding of the climate change investment risks facing our clients is a vital step towards managing those associated risks.”
To this end Schroders said it had developed a number of modelling tools, help its analysts and fund managers measure and manage the risks climage change poses to client portfolios.
