Stockholm (NordSIP) – A new White Paper from Natixis Investment Managers on Institutional Investors published today (February 27th) has found that institutional investors are adopting a more active approach to managing ESG issues, among other findings. 60% of institutional investors now integrate ESG investing into their strategies.
The survey of 500 institutional investors globally conducted by Natixis also found them focusing on alternative investments and risk management, as volatility returns to global markets. 78% of institutional investors had already been anticipating a market shift, the survey found, as evidenced by efforts to diversify and build more durable portfolios by, for example, incorporating more ESG into their strategies.
Among other things, this means that more institutions now seek alpha in ESG than in risk mitigation (59%), a reversal of the previous norm, suggesting that ESG investing itself mitigates risks. Convictions about the benefits of integrating ESG are strong, the report finds, with a convincing majority of respondents (61%) suggesting that the incorporation of ESG into investment strategy is to become an investment norm over the course of the next five years.
“Attitudes towards ESG investing are changing dramatically, with the vast majority of institutions now saying that ESG leads to alpha generation and will become standard practice in less than 5 years,” according to Dave Goodsell, Executive Director of Natixis’ Center for Investor Insight.
“Institutional investors have witnessed the impact of ESG events at numerous companies in recent years and watched as stock values declined, right along with corporate reputations.”
The proof is in the pudding: a year ago, institutional investors were chiefly integrating ESG because of their firm’s mandate or investment policy. By contrast, almost half (47%) now say the incorporation of ESG is driven by the need to align investment strategies with organizational values. 41% say the primary driver has been the need to minimise headline risk, a 21% increase over 2016.
Seven in 10 investors also responded that adding alternative investments is important for diversifying portfolio risk, with a number of alternative strategies to play specific roles within their portfolios: Private equity for alpha generation, managed futures for volatility mitigation, and infrastructure for stable income. Over half (57%) think investing in alternatives is necessary to outperform the broader market.
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