Treasury Today Country Profiles in association with Citi

Sustainability still failing to ignite institutional investor interest

Match unable to stay lit, letting off smoke

Despite the volume of chatter around matters of sustainability, when it comes to investment decisions it remains low on the list of priorities, says a recent survey.

Sustainability is still of limited interest for institutional investors when making their investment decisions, according to the second annual Schroders Institutional Investor Study 2018.

The study – which surveyed a global panel of 650 investors, covering around US$24trn in assets – showed that there is still a gap between the institutions’ perceptions of the importance of sustainability and how it translates into their investment decisions.

With 32% of respondents saying that sustainability had little to no influence on their investment decision-making, traditional factors such as strategic asset allocation, fund manager track record, anticipated return and risk tolerance remain higher on their list of priorities.

Of all respondents, 77% said they found sustainable investing to be at least somewhat challenging. Their main concern was investment performance, with 51% naming this as an obstacle, up on 44% a year ago. Lack of transparency and difficulty measuring risk were also cited as impediments.

For 34% globally, greater confidence could be achieved by demonstrating that investing sustainably delivers better returns. This figure rose to 49% for investors in North America.

Longer term

Of those investors who did place a greater emphasis on sustainability, there was a tendency towards longer-term investment horizons, more investment confidence and prioritised risk-adjusted returns.

Of those with holding periods of at least five years or more, 32% stated that sustainability was a significant influence. Only 23% of investors whose investment horizon was between three and five years cited its importance.

Where there was a greater focus on sustainability, 59% were at least reasonably confident of meeting their expectations, compared to just 37% of investors who did not prioritise sustainable investing.

For investors who did consider sustainability as an influencing factor, 66% were also focused on generating risk-adjusted returns, compared to 53% who were less focused on sustainability.

Raising allocations

Despite the seemingly low uptake, interest in sustainability factors is mounting. Of all respondents, 74% believed that investing sustainably would grow in importance over the next five years. Some 47% reported that they had increased their allocations to investing sustainably over the last five years.

“Empowering investors to think longer term and avoid making short-term, knee-jerk investment decisions has been a growing focus of policymakers globally,” commented Jessica Ground, Global Head of Stewardship, Schroders. “This study highlights that sustainability is going to increasingly sit alongside institutional investors’ more long-standing investment priorities, although there still remain barriers to overcome to achieve this in the near term.”