The lovefest between global investors and the burgeoning environmental, social and governance investing movement is in full bloom. But one exception is in the U.S., where a sizable number of institutional investors still have their doubts.
A new survey from Toronto-based RBC Global Asset Management found growing acceptance of ESG principles by institutional investors in key developed markets even as the U.S. remains a laggard. The firm’s fifth-annual survey of how institutional investors utilize responsible investing, which was conducted in June, contains input from 809 institutional asset owners, investment consultants and investment professionals in the U.S., Canada, Europe and Asia. The respondents work at businesses ranging from pension plan sponsors and endowments to wealth management firms and insurance companies.
In its report, RBC noted that support for ESG in the U.S. has been static in recent years
“For much of the world, ESG adoption has become an overwhelming feature of the investment landscape,” RBC said in its “2020 Responsible Investment Survey.”
“While the U.S. lags behind in adoption,” the report said, “it does so within a context of broad support: 65% is a substantial majority. Still, the results in the U.S. are somewhat puzzling given the growth of adoption elsewhere.”
On a global basis, the RBC survey found an increase in the percentage of institutional investors who believe ESG integrated portfolios are likely to perform as well or better than non-ESG integrated portfolios.
In Canada, that number went from 90% last year to 97.5% this year. In Europe the figures rose from 92% to 96% during that period, and in Asia the percentage gain jumped from 78% to 93%.
It’s a different story in the U.S., where 74% of institutional investors believe ESG integrated portfolios will perform better or as well, down from 78% last year.
Furthermore, the majority of institutional investors in Canada (70%), Europe (72%) and Asia (71%) believe adopting ESG factors can help generate long-term sustainable alpha. That number is just 41% among U.S. institutional investors.
And 53% of U.S. institutional investors believe ESG integrated portfolios can mitigate risk. That’s significantly less than in Canada (87%) and Europe (85%), and a good deal less than in Asia (65%).
Melanie Adams, vice president and head of corporate governance and responsible investment at RBC Global Asset Management, said she could only speculate about why the U.S. appears to be less enthused about ESG investing. But she suggested the regulatory environment could be a reason.
For example, the U.S. Department of Labor has proposed a rule that would make it harder to include ESG-type investments in retirement plans by requiring plan fiduciaries to “never sacrifice investment returns, take on additional investment risk, or pay higher fees to promote non-pecuniary benefits or goals.”
In addition, the DOL laid out limited circumstances where ESG factors can meet economic conditions enabling them to be included in client retirement portfolios.
"There might be a lack of buy-in in the U.S. that we're seeing right now through the regulatory landscape," Adams said.