Survey uncovers growth drivers, regional differences in ESG investing

A recent survey by Macquarie Infrastructure and Real Assets (MIRA) clearly shows a growing interest in ESG by professional investment managers. MIRA’s survey summarizes responses from 150 real asset investors, representing over $20 trillion of assets globally. Some of the key findings include an intensifying interest in sustainable investing, high conviction that an ESG strategy can improve returns, and some revealing regional differences in the resources and attention managers allocate to ESG.

Greater focus on ESG

The MIRA survey found that investors have been increasing their focus on ESG, and intend to continue to do so. 58% of investors report having increased their ESG focus over the past 5 years, while an impressive 91% expect it to increase further over the next 5 years. Some investors expect a long-term convergence between ESG and traditional investing, as explained by one respondent to the survey:

“There will be even less of a divide between “traditional” financial matters and ESG matters. They will become more entangled, with one key driver being the need to invest in, for example, climate change solutions and Sustainable Development Goal solutions.”

Better returns with ESG

Most survey respondents expressed their belief that including ESG considerations can boost investment performance, with 78% supporting the proposition that having a good sustainability strategy improves returns, although 21% indicated that it can actually sacrifice returns. Despite this result, almost two thirds of respondents indicated they are not yet using active ESG assessment in their decision-making.

Exclusion and Active ESG strategies

Investors responding to the survey indicated the use of both exclusion strategies (such as avoiding specific companies or sectors) as well as active strategies (allocating funds to ESG-benefiting sectors). The most commonly categories for exclusion included weapons and defence, Labor/human rights violations, and environmental violations. The most common actively pursued ESG themes are Renewable Energy, Environmental Impact, and Social Impact.

Regional differences

One of the most interesting findings revealed by the survey is the contrast between regions in resources and attention firms allocate to ESG. 72% of respondents from EMEA and 71% from Australia reported having a dedicated ESG function in their firms, compared to only 24% of those in the Americas and 21% in Asia. Similarly, 74% of EMEA investors and 95% in Australia reported having an ESG policy, while only 48% in the Americas and 58% in Asia have one.

ESG growth drivers

MIRA’s survey revealed not only that ESG-driven investing is growing, but also uncovered several of the drivers of that growth. In the commentary section of report discussing the survey findings, MIRA indicated that one of the key reasons for the growth in ESG investing is the increased perception of risk, with investors becoming increasingly conscious of their own reputations and brands, driving them to avoid controversial investments. Other drivers include the belief that sustainable investing improves returns, public policy promoting sustainability and improved ESG disclosure, as well as broader general awareness of environmental, social and governance issues.