Investor sentiment towards ESG investing is starting to shift as questions around sustainable investment performance and other dynamics continue to mount.
Although strong performance in previous years drove interest and appetite, today’s environment of rising rates, inflation and energy markets – coupled with a sell-off in more expensive, ‘ESG friendly’ growth stocks – is forcing investors to take a closer look.
This is according to the findings of Schroders’ latest annual study. It shows that investors are starting to “re-assess and re-define ESG investment for themselves”.
The key concerns surround performance, ESG data comparability and investment tactics, especially among US investors, according to the research.
“As the performance of naïve, passive ESG strategies falters and the regulators circle the wagons, sustainable investing is at a critical juncture,” said Marina Severinovsky, head of sustainability for Schroders in North America.
Concerns grow
The study leads Schroders to believe that 2022 will be a pivotal year in the lifecycle of ESG investing.
“[It will be] defined by the maturing and mainstreaming of ESG as an investment discipline,” said the asset manager.
More specifically, the study found that over two-thirds of respondents want access to more quantitative evidence about the financial considerations of investing sustainably, to encourage greater investment in sustainable strategies.
In addition, a majority are seeking enhanced reporting and transparency from asset managers, with a clear need also for consistent and comparable data points across managers.
To further inform sustainable investing decisions, many investors said in the study that they rely on existing market information, such as reporting by third parties.
“Investors are clear that they need more quantifiable evidence of the value and impact of ESG, and more clarity and transparency into how this investing is practiced and measured,” explained Severinovsky.
Integration preferred
The study also highlighted that those market players looking to invest sustainably prefer ESG integration to positive screening.
Investors also said they are prepared to scrutinise how their investments impact the environment and society, and increasingly want to quantify and account for those impacts.
“We welcome the next stage of the ESG investing lifecycle where industry consistency leads to deeper investor understanding,” added Severinovsky.
Meanwhile, to get exposure to various sustainable investment opportunities, two-thirds of respondents indicated they would like to invest in funds or solutions that mainly aim to deliver financial returns while broadly integrating ESG factors.
