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."
Global Highlights
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, leah.commisso@rbc.com
