LONDON, October 31, 2017 /PRNewswire/ --
In second annual survey of institutional investors and consultants, consensus on key responsible investing issues is the exception
Survey reveals a stark contrast in perceived value of ESG between North American and European investors
Two-thirds of institutional investors use environmental, social and governance (ESG) considerations as part of their investment approach, and 25% expect to increase their allocation to managers with ESG-based investment strategies within one year, according to a global survey by RBC Global Asset Management (RBC GAM). While these results suggest that responsible investing has moved into the mainstream, the survey also reveals how investors' perceptions differ starkly by region; when it comes to ESG investing there are differences between investors in Europe and counterparts in North America.
RBC GAM's survey reveals sharp differences among institutional investors as to whether ESG analysis can mitigate risk and drive alpha in a portfolio. Some institutions plan to increase their exposure to ESG strategies in the near term while others are holding back, unconvinced of its value and unimpressed with available data about corporate performance on ESG. The survey also uncovered broad disagreement over the proper role of shareholders, industry groups and regulators when it comes to improving corporate reporting and driving change on issues such as gender diversity among directors.
"Globally, we are seeing a clear trend toward greater awareness, interest and adoption of ESG analysis and responsible investing," said Judy Cotte, Vice-President and Head of Corporate Governance and Responsible Investment at RBC Global Asset Management. "This survey reveals that many institutional investors are actively discussing these issues within their organisations and with consultants and stakeholders. And while some institutions are moving at a cautious pace, others are moving rapidly to adopt an ESG-based investment approach."
Responsible Investing: The Evolution of Ownership is the second annual survey of institutional attitudes and perceptions of responsible investing conducted by RBC GAM. This year, RBC GAM queried 434 institutional asset owners and investment consultants in the United States, Europe and Canada. The key findings from the global survey include:
- ESG is a global phenomenon - A full 67% of global respondents use ESG principles as part of their investment approach. By region, more investors in Europe (85%) than in Canada (73%) and the U.S. (49%) incorporate ESG analysis.
- Mandates (or lack of them) are key - The main reason (51%) given by institutional investors who do not incorporate ESG analysis is the lack of requirements to do so from their boards of directors. The other most commonly cited reasons are an unclear value proposition, and their strict preference for financial analysis. Interestingly, the inverse of these reasons was given by those who have adopted ESG - they do it for the clear value proposition, their preference for multiple analytical factors in the investment process, and to comply with a clear board-level mandate or investment guidelines.
- ESG analysis as an investment tool - Thirty-two percent of global respondents said they do not consider the use of ESG factors to be a way to mitigate risk in their portfolios, while 20% are unsure. Forty-six percent do not consider ESG factors to be an alpha source and 30% are unsure. This uncertainty opens up an opportunity for investment managers who utilise ESG analysis as they compete to create value for their clients.
- Poor information quality - For institutional investors who employ ESG criteria, a majority across all regions of the survey are not satisfied with the disclosure of ESG metrics provided by corporations. U.S. and Canadian investors prefer to allow shareholder proposals to do the work of improving disclosure. European investors prefer that government regulators require it.
- Gender diversity - A large majority of institutional investors in every region polled said gender diversity on corporate boards is important to them - 71% in the U.S., 80% in Canada and 68% in Europe. As with disclosure of ESG metrics, European investors prefer that government regulators require gender diversity; investors in the U.S. strongly prefer market forces to regulation; Canadian investors' preference is split between shareholder initiatives and market forces.
- Changing Corporate Behaviour - Within the context of the Fossil Fuel Free movement, only 6% of global respondents said that divestment was more effective than engagement. In the U.S. and Canada, engagement is viewed as more effective than divestment. One-third of Europeans agree, but the same number view divestment and engagement to be equally effective. On the topic of exclusions more broadly, 48% of European respondents view negative screens as applicable across investor types; less than a third of U.S. and Canadian respondents agreed.
"ESG investing has gone from being a tangential topic for investors, to an increasingly important consideration in the investment decision making process," said Habib Subjally, Senior Portfolio Manager and Head of Global Equities, RBC Global Asset Management UK Ltd. "There is a growing level of interest among investors to gain a better understanding on the implications of ESG integration. We believe that ESG should not be perceived as the latest investment trend and that when applied in a thoughtful way, considering these factors will enable investors to approach decisions with a broader, more complete set of information."
The Picture in Europe: Leading the ESG charge
The survey revealed that institutional investors in Europe are significantly ahead of their North American counterparts on most measures with regards to ESG.
- European institutions lead the charge for incorporating ESG into their decision making process: Forty-five percent of European institutional investors say ESG principles are a significant part of their investment approach and decision making compared with just 12% in the U.S. and 16% in Canada. When asked if they utilise ESG principles either "significantly" or "somewhat" the picture is more even between Europe and Canada, with 84% and 73% of investors doing so, respectively. The U.S., however, lags behind with only 49% of institutional investors saying they do so.
- Board demand as the main reason for not applying ESG: The predominant reason (52% overall) given by investors from all markets for not incorporating ESG principles is a lack of demand from the board, decision makers or other stakeholders. In Europe, this was cited by 67% of institutional investors as the primary reason, a similar scenario to the U.S. where 62% of investors also cited board demand.
- European investors trust in the return potential from ESG investments: Optimism regarding the investment potential for ESG investments is significantly higher in Europe, which explains the increased allocation to such investments in the region. Forty percent of European investors believe ESG investments will perform better than non-ESG investments, while 96% say they will perform either as well or better. In Canada 24% believe they will perform better, and pessimism is even higher in the U.S. where only 5% believe ESG investments may outperform.
- Institutional investors believe gender diversity is important: Two-thirds (68%) of European managers say gender diversity on corporate boards is important to them or their organisation, and the view in the U.S. is comparable (71%). Here, Canada is the leader, where 80% of institutions view gender diversity on company boards to be important.
- More needs to be done to improve the level of reporting on ESG criteria: Overall, European institutional investors are not happy with the current level of reporting on ESG, with 47% saying they are dissatisfied with the reporting provided by companies. This compares with 35% of Canadian investors and 25% of U.S. investors. When asked who should be influencing companies to provide better ESG information, the majority of European investors cited government regulators, whereas investors in the U.S. and Canada said shareholders should drive this through ballot initiatives.
About the Survey
The data for RBC GAM's report, Responsible Investing: The Evolution of Ownership, was gathered via a survey conducted in July and August 2017. The survey collected the opinions of 434 institutional asset owners and investment consultants in Canada, the U.S. and Europe. For a full copy of the survey results and analysis visit RBC GAM's Corporate Governance and Responsible Investing website.
About RBC Global Asset Management
RBC Global Asset Management (RBC GAM) is the asset management division of Royal Bank of Canada (RBC) and includes institutional money managers BlueBay Asset Management and Phillips, Hager & North Investment Management. RBC GAM is a provider of global investment management services and solutions to institutional, high-net-worth and individual investors through separate accounts, pooled funds, mutual funds, hedge funds, exchange-traded funds and specialty investment strategies. The RBC GAM group of companies manages approximately $400 billion in assets and has approximately 1,400 employees located across Canada, the United States, Europe and Asia.
For more information, please contact:
Leah Commisso, RBC GAM Corporate Communications, +1-416-955-6498, email@example.com
SOURCE RBC Global Asset Management Inc.