RBC Survey: Support For Responsible Investing Grows, But Differences Remain

Nov 2 2017 | 5:57pm ET

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 the second annual global survey on the subject by RBC Global Asset Management. 

However, there is a marked contrast in the perceived value between European and U.S. investors, the survey found. When it comes to ESG investing, investors in the United States are far less accepting than their European counterparts.

RBC polled 434 institutional asset owners and investment consultants in Canada, the U.S. and Europe in July and August 2017. 

The survey also found 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 remain unconvinced of its value and unimpressed with available data about corporate performance on ESG. Moreover, there is clear disagreement about the role of shareholders, industry groups and regulators when it comes to corporate reporting and driving change on issues such as gender diversity among directors. 

Key highlights of RBC’s survey, named Responsible Investing: The Evolution of Ownership:

  • 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 US (49%) incorporate ESG analysis.  
  • Adoption of ESG investing is increasing in the US, and fully 25% of survey respondents plan to increase their allocation to ESG investment strategies within the next year. However, US adoption is far behind Europe, where that figure is 49%. 
  • 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. 
  • 32% 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. 
  • For institutional investors who employ ESG criteria, a majority across all regions 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.
  • While 56% of US respondents said they expect companies with high-quality ESG practices to have more sustainable long-term returns, fewer than 10% expect ESG practices to result in a lower cost of capital, earnings growth and/or higher returns to shareholders. 
  • A large majority of institutional investors in every region polled said gender diversity on corporate boards is important to them – 71% in the US, 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.
  • On the topic of fossil fuels, only 6% of global respondents said that divestment was more effective than engagement. 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.”

RBC Global Asset Management 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. The company provides 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. 

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