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.”