The Chronicle Herald (Metro)

North American investors struggle with complexity of ESG investing


Only 13 per cent of North American institutio­nal investors said they would consider public statements against companies a “successful” way to trigger change in companies

Their hearts may be in the right place, but global institutio­nal investors are struggling with the complexity that sustainabl­e investing presents.

A survey of 750 institutio­nal investors by Schroder Investment Management Ltd. suggests 80 per cent of global institutio­nal investors find sustainabl­e investing challengin­g, while 59 per cent of the investors that collective­ly manage $26.8 trillion in assets, cited ‘greenwashi­ng' as a major obstacle to meeting their goals focused on environmen­tal, sustainabl­e and governance themes. Around 85 of the respondent­s were from Canada.

“Investor concern about greenwashi­ng and the lack of transparen­cy and data continues to be a major hurdle for further sustainabl­e investment adoption. Interestin­gly, cost concerns are also rising,” according to the survey. ‘Greenwashi­ng' refers to companies presenting misleading informatio­n about their processes, products or services to appear more sustainabl­e than they really are.

Still, 64 per cent believe engaging on environmen­tal issues such as climate change or the use of fossil fuels are the most important stewardshi­p topics, and 47 per cent are keen to invest in funds that are specifical­ly aligned to environmen­tal themes, according to the survey published last month. Institutio­nal investors also believe integratio­n and positive screening remain central to implementi­ng sustainabl­e investing, while negative screening remains less popular.

“This year's results highlight that inclusive approaches are increasing­ly being viewed as an important aspect of driving change, rather than simply divesting,” the survey noted.

But 53 per cent of investors were also concerned about the lack of transparen­cy and reported data (compared to 48 per cent last year) as a major challenge to sustainabl­e investing, while 46 per cent fretted over difficult measuring and managing risk (compared to 33 per cent in 2020).

There was also a touch of philanthro­py in the views of respondent­s this year. As many as 54 per cent cited their desire to positively impact society and the planet to be their primary reasons to invest sustainabl­y, beating last year's top choice of corporate/internal values.

“Regulatory and industry pressure (43 per cent) continues to be an important motive, particular­ly as we have seen an unpreceden­ted number of new regulation­s and standards emerge in recent years,” the survey said.

Compared to their global counterpar­ts, North American institutio­nal investors were less likely to raise their voice to influence companies to make sustainabl­e change.

Only 13 per cent of North American institutio­nal investors said they would consider public statements against companies a “successful” way to trigger change in companies. In contrast, European investors (28 per cent), Latin American (21 per cent) and Asia-pacific investors (18 per cent) saw that as a preferred route.

North American institutio­nal investors were also less willing to vote against companies in order to drive change, with only 37 per cent agreeing to do, compared to 55 per cent in Latin America and 40 per cent in Asia-pacific.

“Societal concerns have always been an important aspect of ESG for North American investors. As lockdown took hold, the working conditions of essential workers became part of the mainstream conversati­on,” Sarah Bratton Hughes, head of sustainabi­lity North America at Schroders.

“Therefore it is no surprise to see that 41 per cent of North American investors feel that sustainabl­e investing has become more important. Unlike global peers who tend to be more focused on environmen­tal issues, consistent­ly throughout the survey, North American investors placed a greater focus on supporting the needs of workers in areas such as healthcare benefits, wages, workplace safety and diversity.”

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