As ESG investing matures, interest remains strong but investors are more critical than before.
After two consecutive years of significant increases in the use of environmental, social and governance (ESG) investment strategies and managers, the market is showing signs of maturing, with further growth in adoption slowing and an evident divergence of opinion about the value of ESG-based investing. The 2019 RBC Global Asset Management Responsible Investing Survey shows that, across the globe, the vast majority of institutional investors continue to embrace ESG principles and engage with their investment consultants and external money managers on the use of ESG-informed strategies. Among those institutions who apply ESG significantly, the belief in its value remains strong. However, those institutions who apply ESG “somewhat” or who have not yet embraced an ESG approach appear less convinced of its merits than before, or comfortable to remain on the sidelines for now.
One clear theme emerging from this year’s survey is an increase in the level of uncertainty around ESG. There appears to be a divergence of views about the value of ESG as it relates to investment performance, with significant adopters of ESG remaining confident in its value but the balance of the survey sample expressing more doubts in this area. Moreover, when asked about ESG’s ability to mitigate risk, the percentage of respondents who said they were not sure rose notably this year.
Still, while the rate of further adoption of ESG-based investing appears to have plateaued over the past year, the institutional investors who have adopted such an approach (and this group remains in the majority) remain committed to it. These adopters are clearly thinking deeply about key ESG factors such as using them across different asset classes, engagement and identifying the specific ESG issues—including cyber security, climate change, anti-corruption and water— that are most important to them.