Results of a new research study released by global investment professional association CFA Institute revealed a significant increase in interest in and awareness of ESG investing, while actual investment in products incorporating ESG factors remains low. The study also reveals that while risk management remains the greatest motivator of ESG integration by investment managers, client demand is emerging as a key driver as well.
The CFA Institute Study includes the views of over 7,000 surveyed investment industry participants, including retail investors, institutional investors, and investment practitioners, as well as participants in roundtables and interviews.
According to the findings of the study, awareness of ESG investing has become widespread, with 76% of institutional investors and 69% of retail investors reporting having interest in ESG investing. In practice, however, only 19% of institutional investors and 10% of retail investors currently invest in products that incorporate ESG factors. Integration of ESG factors into the investment process does appear to be on the rise, with 85% of practitioners reporting taking at least some E, S, or G factors into consideration in their investing, up from 73% surveyed three years ago.
The survey also studied the drivers of ESG integration by investors, revealing that risk management remains the prime motivator. When asked to list reasons for taking ESG issues into consideration, 64% selected ‘to help manage investment risks,’ nearly unchanged from 65% three years ago. Client/investor demand is rapidly emerging as a key driver as well, jumping to 59% from 45%. 43% reported that consideration of ESG factors were a fiduciary duty, while 35% claimed improved investment performance as a driver.
Other key findings from the study include:
- 90% of investment professionals expect their firm’s commitment to ESG research will increase, up from 72% just two years ago.
- 78% of practitioners surveyed believe there is a need for improved standards around ESG products to mitigate “greenwashing.”
- Of those with an interest in ESG investing, improved performance was the top driver for institutional investors at 47%, while the expression of personal values or the desire to have a positive impact was the top consideration for retail investors (47%).
- 63% of investment professionals report using ESG company ratings in company analysis, with 11% stating it is a primary part of the analysis.
- 60% of respondents report that they do not incorporate climate risk into their investment analysis, with a lack of measurement tools cited as the top reason.
Margaret Franklin, CFA, President and CEO of CFA Institute, said:
“Incorporating sustainability in investment management has become part of our industry’s mission to serve society by improving long-term outcomes. This moment represents a valuable opportunity for organizations to address this challenge and help shape a future worth investing in. As the focus on sustainability in investing gathers increasing momentum, it will eventually dictate the sustainability of investing itself.”
Rhodri Preece, CFA, Senior Head of Industry Research for CFA Institute, added:
“The demand for sustainable investing continues unabated, driven by push and pull factors, catalyzed by societal expectations, and accelerated by the Covid-19 pandemic. Investment firms that incorporate sustainability into their business models need access to specialist knowledge to enrich their investment capabilities and to bridge the data gaps. Education and training in the ESG space, along with the rise of alternative data sources and enhanced disclosure frameworks, will equip firms to deliver on the potential of sustainable investing.”