Stockholm (NordSIP) – According to a recent investor survey conducted by asset management firm Invesco, the popularity and mainstreaming of ESG integration has continued to grow during the last year. This study incorporates the views of 130 institutional investors and 111 wholesale investors, collectively responsible for managing over US$31 trillion in assets.
ESG, Resilience and Overlaps
In 2021, 78% of respondents (all of them factor investors) reportedly incorporated ESG in their portfolio. Although, the most important driver of ESG adoption has traditionally been demand from stakeholders and beneficiaries, this year’s respondents focused on the belief that ESG enhances long-run investment performance, through the mitigation of long-term investment risk, for example. “We believe ESG leads to the selection of more resilient companies in the long-run,” Invesco’s report quoted one North American wholesale investor as saying.
Although challenges remain regarding the adoption of ESG in factor approaches, respondents noted they were gradually being overcome. “Active investing looks more compatible with ESG in the short term, as you can select from the largest investment universe. In factor, the product range is still limited but we see new products emerging,” said one European institutional investor.
ESG for ESG’s Sake
Another issue facing ESG adoption is the belief that ESG is not a factor onto itself, but rather a way to capture something else. In one way or another, this appears to still be the majority’s view.
According to the investor survey, only 30% of respondents believe ESG replicate the characteristics of investment factors such as value and quality. 29% believe ESG overlaps with other investment factors and therefore shows indirectly through them.
Only the remaining 41% of respondents believed that ESG was an independent factor, which captured a dynamic independent of any of the investment factors.