The use of environmental, social and corporate governance (ESG) investing strategies is accelerating across the investment industry, with 77% of professional investors considering ESG factors "an integral part of sound investing," according to a survey by Natixis Investment Managers.
The global survey of 3,600 professional investors in 2020 found that about 75% of respondents were implementing ESG strategies. That included 72% of institutional investors (up from 61% in 2018) and 77% of "gatekeepers" who select funds for their firms' investment advisory platforms (up from 65% in 2018).
Moreover, 68% of professional fund selectors said they plan to expand their firm’s ESG offerings, mainly because of investor demand, according to the survey.
Natixis noted that ESG products are growing so fast that it has raised alarms about inflated expectations.
“The rapid global adoption of ESG has raised questions about whether the momentum building around ESG will continue or if it’s building toward a bubble,” said Harald Walkate, head of ESG for Natixis Investment Managers, in a prepared statement. “The answer lies in greater clarity about what investors ultimately want to achieve, not only to deploy ESG strategies that align with their values but also to set realistic expectations for both financial results and societal impact.”
Natixis said 77% of professional fund selectors and 75% of institutional investors consider ESG factors an integral part of sound investing. Financial advisors concur. Also, 59% of financial advisors expect ESG investing to be a standard practice across the industry.
Among institutional investors, 53% said that companies with better ESG track records generate better investment returns, and 79% said the industry has gotten better at benchmarking performance in the sector.
When asked what was driving the growth of ESG investing, 75% of fund selectors cited heightened social awareness and 50% cited the fact that ESG investing has now reached critical mass among mainstream investors. They also mentioned investors’ desire to be part of a greener economy (named by 42% of fund selectors) and concerns about climate change (named by 36%), Natixis said.
From previous surveys, Natixis said it found that 77% of individual investors wanted their investments and values to be aligned, and also that they want their advisors to help them achieve that goal.
“For advisors, it’s not always clear what clients mean by personal values or whether ESG investors are primarily motivated by a desire to make a better world or better financial returns, or both,” said Dave Goodsell, executive director of the Natixis Center for Investor Insight, in a prepared statement. “Ultimately, more concrete evidence of financial and nonfinancial results is needed, but questions and conversations about clients’ motives could go a long way toward helping advisors tailor the best ESG strategies to meet their clients’ objectives.”
The name of the survey is “ESG Investing: Everyone’s on the Bandwagon.”
According to the survey, the most widely used approach among investors is to integrate ESG factor analysis into the overall investment process, accounting for issues with potential to materially affect a company’s performance. About 40% of fund selectors and institutional investors rely on so-called “negative screening”—which means removing companies or industries from a portfolio for bad behavior.
“The exclusion of companies or industries deemed as unethical or harmful, an approach taken by early adopters of socially responsible investing in the 1970s, fell out of favor with many investors for lack of compelling evidence that it produced either a financial or societal benefit,” Natixis said.