The global survey polled 155 investment professionals in the UK and found that 84 per cent of respondents engage with responsible investment through environmental, social and governance (ESG) integration. Nearly half (48 per cent) have a responsible investing (RI) or ESG policy in place and are actively making changes to investments as a result.
Climate change is the most pressing investment concern for the majority of respondents (68 per cent), followed by socio-economic inequality (28 per cent), cyber risks (26 per cent) and biodiversity loss (26 per cent). Respondents representing defined contribution (DC) plans tended to have a broader range of concerns than those with defined benefit (DB) plans. One reason for this is that DC activity is often driven by its members, who are increasingly aware of ESG issues and are more directly engaged than their DB peers.
Tim Manuel, partner and co-head of Responsible Investment at Aon in the UK, said: “As the more-lasting impacts of the COVID-19 pandemic become clearer, and strains on the environment and society increase, the influence of responsible investing among UK institutional investors will continue to grow.
“Active awareness and appetite for change is visible globally and especially among UK scheme members, many of whom are calling for their investments to have strong ESG credentials. As new forms of volatility emerge, we expect these priorities to evolve and come into sharper focus.”
Tim Manuel continued: “While the desire to make a positive societal or environmental impact and achieving better alignment with stakeholders are key drivers for the adoption of ESG investing, the tide is being turned by the growing perception that responsible investment also leads to better risk-adjusted returns.
“The survey found that satisfaction with performance is consistently high, with 73 per cent of those invested in responsible investments saying that they are either satisfied or very satisfied with their returns to date. Some of the perceived barriers to adoption have fallen, including the risk-return trade off, which in the past made investors sceptical about ESG investing. Enough time has now passed for those wanting to invest to see the return potential. Regardless of where the debate goes in the future, responsible investing now has a track record, performance is no longer hypothetical and investors say they are satisfied with performance and returns.”
The survey also showed that some barriers to adoption remain, notably the availability of reliable data. This is still a roadblock to implementation for 18 per cent of UK schemes. For responsible investment to become even more compelling, nearly half of respondents want to see better or more consistent data on ESG factors. Similarly, 37 per cent want greater industry agreement around definitions.
Tim Manuel continued: “We see this barrier with our clients, which suggests that while reliable and consistent data can pose a challenge to making better decisions in many areas, the regulatory framework will be key to rapid progress and for the adoption of responsible investment strategies.”
The survey’s UK findings also show that a consensus is emerging among investors – approximately half say that adoption of responsible investment will be driven by climate concerns (49 per cent) and policy action from regulatory bodies (46 per cent).
Tim Manuel continued: “We expect regulation to continue to act as a catalyst. The more investors engage with responsible investing, the more inclined they will be to adopt it and go further. It is really telling that nearly one in five UK pension schemes have already aligned their investment portfolios to reach net-zero emissions before 2050, and that another 53 per cent intend to do so in the future – and this is not currently a regulatory requirement in the UK.
“Though an increasingly positive view of responsible investment is evident throughout, the responses to our survey highlight that many investors remain at very different stages of the journey. This varying pace of adoption could pose some difficulties to the fund management industry, which will have to deliver to those different needs. With the wider acceptance and integration of responsible investing now a reality, fund managers will need to be better prepared to meet investors’ wishes.”
2022 Global Perspectives on Responsible Investing is available here
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