While more institutional investors are
going "all in", others stay on the sidelines
Key Highlights:
- More than 70% of institutional investors use ESG principles
as part of their investment approach and decision-making
process
- A positive performance impact (mitigating risk and enhancing
returns) is now the top-cited reason for incorporating an ESG-based
approach
- Cyber security ranks as the most important ESG issue for
institutional investors surveyed
- On average, institutional ESG-based portfolios are 61%
actively managed
TORONTO, Oct. 16, 2019 /CNW/ - Institutional investors in
Canada, the United States and the United Kingdom who apply environmental, social
and governance (ESG) principles are committing more of their assets
to this approach than ever before, according to the 2019 RBC Global
Asset Management (RBC GAM) Responsible Investing Survey. Moreover,
these investors are adopting an ESG-based approach specifically
because they view it as a way to enhance returns and mitigate
risk.
The RBC GAM survey revealed that in key markets, institutional
investors are shifting more of their assets to an ESG-based
approach. Regionally, the percentage of survey respondents who
report using ESG principles "significantly" as opposed to
"somewhat" rose slightly in the US (up about 3% from 2018), more
significantly in Canada (up over
5%) and especially rapidly in the UK (up 30%). This group of
adopters is also more convinced of the tangible value that an
ESG-based approach provides to their portfolios. Mitigating risk
and enhancing returns is now the number one reason institutional
investors are incorporating this approach, with 53% of respondents
citing it this year.
RBC GAM's research also suggests that the responsible investing
market is showing signs of maturing. After two consecutive years of
rapid growth in the adoption of ESG investment strategies, this
growth slowed in 2019. The percentage of institutional investors
who said they use ESG principles as part of their investment
approach and decision-making process remained relatively flat
compared to last year, at 70%. However, on a regional basis, the
percentage of institutional investors in the UK and Canada who "significantly" or "somewhat" adopt
ESG factors continued to tick upward, reaching 97% and 80%,
respectively. In the US, ESG adoption was flat versus 2018, at
around 65%.
"This new data confirms that while the multi-year trend of rapid
increases in ESG adoption by institutional investors may be
tapering off, the vast majority of these asset owners are still
committed to using ESG principles in their investment process,"
said Melanie Adams, Vice President
and Head of Corporate Governance and Responsible Investment at RBC
GAM. "It is also noteworthy that institutional investors in the US,
Canada and the UK, who already
significantly incorporate ESG into their investment decision-making
are more convinced than ever that this approach helps lower risk
and increase returns, and these investors are committing a larger
percentage of their portfolios to an ESG-based approach."
Global Highlights
Responsible Investing: An
Evolving Landscape is RBC GAM's fourth annual survey of
institutional investors' perceptions and intentions regarding
responsible investing. For this year's report, RBC GAM, which
includes BlueBay Asset Management, surveyed a total of 799
institutional asset owners, investment consultants and investment
professionals in the United
States, Canada,
Europe and Asia. Key findings from the survey
include:
Diverging views on the performance of ESG
investing: The RBC GAM survey reveals a divergence of
views about the value of ESG on investment performance, with
"significant" adopters of ESG expressing greater confidence, but
the full survey sample expressing more doubts in this area. For
example, the percentage of respondents who believe an ESG-based
portfolio will perform worse than a non-ESG-based portfolio
increased from 10% to 18%. When also asked about ESG's ability to
mitigate risk, the percentage of respondents who said they were not
sure rose to 24% this year from 18% in 2018. However, in contrast
to the full survey sample, respondents who identified as
"significant" adopters of ESG held fast in their conviction in this
area in 2019, with 98% saying that an ESG-integrated portfolio
would perform as well or better than a non-ESG-integrated
portfolio.
What keeps institutional investors up at night? Cyber
security: This year, the RBC GAM survey asked respondents to
rank which ESG issues they are concerned about when investing.
Cyber security ranked first globally, as 67% of respondents said
they were concerned or very concerned about it, followed by 66% of
respondents who had concerns with anti-corruption. When examined
regionally, Europe and the UK
combined ranked climate change as the No. 1 concern. In
Canada, anti-corruption ranked
first, whereas cyber security ranked top overall in the US.
Institutional investors are more likely to choose active
management for ESG portfolios: For the first time, survey
respondents were asked what percentage of their portfolio under the
umbrella of responsible investing is actively managed. Despite the
rise of passive management as a trend globally, the overall average
level of institutional ESG-based portfolios that is actively
managed is 61%, according to the survey data. Among institutional
investors surveyed, 28% said their entire ESG-based portfolio is
actively managed, while 10% said their entire ESG-based portfolio
is passively managed.
Investors still prefer engagement over
divestment: The RBC GAM survey data suggests that
institutional investors prefer to engage with corporate management,
rather than divest, as a way to influence company behaviour. In the
context of the "fossil fuel free" movement, investors came down
squarely on the side of engagement, as they did in last year's
survey. However, their enthusiasm for engagement appears to have
diminished: 39% of respondents in 2019 said engagement is more
effective than divestment, down from 45% last year. The number who
said divestment is more effective edged up to 10%, compared to 8%
last year.
Majority of US investors are skeptical about gender diversity
targets: In the 2018 survey, three-quarters of respondents
said gender diversity on corporate boards was important to them.
This year, when the question was phrased in terms of whether
corporations should adopt gender diversity targets, most investors
said no. To be sure, it was a close vote: 52% said no and 48% said
yes. The highest no vote came from the US, at 55%, while the
highest yes vote, 55.6%, came from Europe and the UK combined.
Shifts in negative screening: Similar to 2018, three
quarters of respondents said they do not apply negative socially
responsible investing (SRI) screens, which is in line with their
preference for engagement over divestment. But for those investors
who do apply negative screens, this year's results point to new
trends. As in 2018, the cluster munitions and landmines category
remains the most used screen, but it witnessed a 10% decrease this
year. There were increases this year in the percentage of
institutional investors who screen out gaming (37% of respondents
who use screens, up 5%) and nuclear power (27%, up 6%). The
application of fossil fuel related screens grew modestly in 2019 at
a global level, but regionally the picture was more pronounced, as
the use of this screen grew by over 10% in Canada (to 33% of respondents who apply
screens) but declined by 15% in the US (to 44%).
"While institutional investors who already significantly
incorporate ESG principles appear more convinced than ever before
that this approach adds value, there still remains a lot of
uncertainty around ESG in the broader marketplace," said
Habib Subjally, Senior Portfolio
Manager and Head of Global Equities at RBC Global Asset Management
(UK) Limited. "With this increased uncertainty, asset managers,
financial advisors and consultants will be called upon to offer
guidance to their clients about responsible investing options that
support their long-term financial goals."
About RBC Global Asset Management
RBC Global Asset
Management (RBC GAM) is the asset management division of Royal
Bank of Canada (RBC) and includes
money managers BlueBay Asset Management and Phillips, Hager &
North Investment Management. RBC GAM is a provider of global
investment management services and solutions to institutional,
high-net-worth and individual investors through separate accounts,
pooled funds, mutual funds, hedge funds, exchange-traded funds and
specialty investment strategies. The RBC GAM group of companies
manage approximately $450 billion CAD
in assets and have approximately 1,400 employees located across
Canada, the United States, Europe and Asia.
About RBC
Royal Bank of Canada is a global financial institution with
a purpose-driven, principles-led approach to delivering leading
performance. Our success comes from the 86,000+ employees who bring
our vision, values and strategy to life so we can help our clients
thrive and communities prosper. As Canada's biggest bank, and one of the largest
in the world based on market capitalization, we have a diversified
business model with a focus on innovation and providing exceptional
experiences to more than 16 million clients in Canada, the U.S. and 34 other countries. Learn
more at rbc.com.
We are proud to support a broad range of community initiatives
through donations, community investments and employee volunteer
activities. See how at rbc.com/community-sustainability.
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SOURCE RBC Global Asset Management