TORONTO, Oct. 2, 2018 /PRNewswire/ - Ninety percent
of institutional investors believe environmental, social and
governance (ESG) integrated portfolios are likely to perform as
well or better than non-ESG integrated portfolios, according to a
new global survey by RBC Global Asset Management (RBC GAM). The
results reveal that adoption of responsible investing – including
ESG integration, impact investing and engagement by asset owners –
is growing steadily as the focus of institutional investors moves
from "whether to" to "how to" implement a responsible investment
approach.
RBC GAM's research reveals that ESG-based investing has
established a solid position alongside other fundamental investment
approaches. Moreover, there is a growing interest in applying ESG
principles to diverse asset classes, including fixed income and
infrastructure.
"This new data confirms that the majority of institutional
investors and consultants have either adopted ESG principles or are
actively looking at how to do so," said Judy Cotte, Vice-President and Head of Corporate
Governance and Responsible Investment at RBC Global Asset
Management. "Importantly, many institutional asset owners now
believe they have a duty to consider a responsible investing
approach. This ongoing shift has significant implications for how
large institutional asset pools are allocated, as well as the
advice and service provided by consultants and asset managers."
Global Highlights
Responsible Investing: Charting a Sustainable Advantage
is RBC GAM's third annual survey of institutional investors'
perceptions and intentions regarding responsible investing. For
this year's report, RBC GAM, which includes BlueBay Asset
Management, surveyed 542 institutional asset owners and investment
consultants in the United States,
Canada, Europe and Asia. Key findings from the survey
include:
- Performance has become a key selling point: A full 38%
of 2018 survey respondents believe integrating ESG factors can help
generate alpha – a significant increase from 2017 results when 24%
of respondents said that they consider ESG to be a source of alpha.
Only 20% of respondents in 2018 do not believe ESG integration is
an alpha source. On the other hand, the level of uncertainty about
ESG's merits as an alpha source remains strong: 42% of respondents
continue to say they aren't sure.
- Responsible investing is increasingly considered to be a
fiduciary responsibility: More than 50% of all respondents who
incorporate ESG factors into their investment approach say they
consider this to be part of their fiduciary duty – double the
percentage who said so last year.
- Gender diversity on corporate boards continues to be
important: Forty-two percent of institutional investors support
shareholder proposals as an effective means to achieve gender
diversity on boards. This replaced "market forces" as the preferred
approach identified in last year's survey. In addition this year,
we asked respondents about diversity targets and discovered that
63% favour non-binding diversity targets and, of those, 64% support
a target greater than 30%.
- ESG goes beyond equities: Equities have been the primary
focus when considering ESG factors with the survey confirming that
the majority (84%) of institutional investors incorporate ESG
factors into their process. However, the survey also indicates
that ESG analysis is moving beyond equities, as 60% of respondents
incorporate it into their fixed-income portfolios, 43% in real
estate, 36% in infrastructure and 34% in alternative assets.
- Exclusion screens vs. ESG integration and engagement: As
responsible investing has developed, the discussion about how to
apply the principles in a portfolio has evolved from negative
screens (often excluding "sin" stocks such as alcohol, tobacco and
firearms companies) to a range of approaches with an increased
focus on engagement with companies as a way to influence corporate
behaviour. When asked in the context of the Fossil Fuel Free
movement whether it was more effective to divest or engage, for
example, 45% of the 2018 survey respondents said engagement is more
effective (compared to 8% of respondents who prefer divestment),
demonstrating that investors continue to favour engaging in
dialogue with companies instead of simply selling their shares.
- Negative screening: Among institutional investors who
apply negative screens to their portfolios, companies associated
with cluster munitions and landmines were the most likely to be
excluded (75% of respondents screen them out), followed by weapons
generally (66%), tobacco (60%) and fossil fuels (42%). With respect
to fossil fuel screens, the survey revealed pointed differences by
region: fossil fuel screens are unpopular in Canada (23%) while in the U.S. they are among
the most widely used screens (62%) – in line with weapons and
tobacco, and even slightly ahead of cluster munitions. In the UK,
screens are applied more evenly across the board.
The survey results affirm that responsible investing – and the
integration of ESG principles in particular – continues to grow. It
also reveals that the remaining barriers to adoption may be a
question of adequate resources and access to quality information,
as opposed to philosophical opposition to the idea. Institutional
investors, boards of trustees, consultants and other members of the
investment ecosystem increasingly appear to understand the value of
ESG integration and are demanding that it be incorporated into the
investment process.
"As industry acceptance of ESG integration has accelerated and
become mainstream, there will be greater focus on ESG-related
investment research and its application in the portfolio management
process," said Habib Subjally,
Senior Portfolio Manager and Head Global Equities at RBC Global
Asset Management (UK) Limited.
"And as the demand for responsible investment solutions grows,
asset managers and consultants will increasingly be called upon to
offer guidance to their clients about responsible investing options
that support their long-term financial goals."
About RBC Global Asset Management
RBC Global Asset
Management (RBC GAM) is the asset management division of Royal Bank
of Canada (RBC) and includes
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 manage more
than USD$330 billion in assets and
have approximately 1,400 employees located across Canada, the United
States, Europe and
Asia.
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SOURCE RBC Global Asset Management
