Investors say ESG factors more important than financial metrics
ESG factors have grown in importance to institutional investors and are now more important than many traditional financial metrics, according to new research by Federated Hermes.
This ‘Responsible Capitalism’ survey of 100 UK-based institutional investors found that for the vast majority (88 per cent), ESG factors play a central role in long-term investment decisions and are regarded as more important than traditional financial metrics.
The study also found investors recognise the positive impact of investing in companies that incorporate ESG principles into their practices on business performance. Most institutional investors believe that companies that focus on ESG issues will outperform their competitors (83 per cent), produce better long-term returns, and reduce investment risk (80 per cent).
Furthermore, 79 per cent of institutional investors believe that companies with poor ESG performance should be avoided, even if the short-term returns appear attractive.
ESG is only one component of a larger picture for responsible investors. According to the survey, most investors (85 per cent) see engagement with companies through stewardship as an effective tool for achieving investment objectives through an ESG lens. Over the last three years, 78 per cent believe that engagement activity has become more effective.
Federated Hermes CEO of international business Saker Nusseibeh says: “As we approach COP26, the need for the investment management industry to play its part in efforts to tackle climate change globally has never been more urgent. The results of our survey of major UK institutional investors show that for these investors, an approach anchored in ESG is not a ‘nice to have’ but core to their decision-making process. It backs up our long-held view that, over the long term, ESG factors are financial factors when it comes to investing.
“At Federated Hermes, we firmly believe active engagement with companies through stewardship is the most effective means of driving positive change. It is encouraging that most institutional investors agree, showing we have moved beyond the blunt instrument of divestment.
“Our survey shows institutional investors see engagement as growing in effectiveness. Successes of the past year have clearly triggered a huge shift in investor sentiment. The momentum is now clearly with those who favour long-term financial sustainability over short-term gains.”
