ESG engagment climbing among institutional investors

Institutional investors are actively considering environmental, social and corporate governance (ESG) criteria in their alternative investment decisions with many stating ESG improves risk-adjusted returns.

A survey conducted by Mercer and alternative investment specialist LGT Capital Partners found that fifty seven per cent of the 97 institutional investors respondents drawn from 22 countries believed that that incorporating ESG criteria had a positive impact on risk-adjusted returns, with only 9 per cent believing think it lowered returns.

The survey – titled Global Insights on ESG in Alternative Investing- found that ESG factors were actively considered by 76 per cent of respondents when investing in alternative assets with issues that could impact the long-term risk, reputation or overall performance of a company viewed as important.

These issues included carbon intensity, controversial weapons and bribery and corruption while exclusion criteria, such as alcohol or tobacco, were rarely considered. 

LGT Capital Partners, Managing Partner and Chairman of ESG Committee, Tycho Sneyers, said the recognition by senior executives within the 97 institutional investors about the link between ESG and returns showed that analysis had moved beyond ethical concerns and was now risk and investment management topic and its integration would continue to grow.

Mercer Global Head of Investment Research Deb Clarke this growth of interest among institutional investors was encouraging and the inclusion of ESG considerations strengthened a portfolio’s defence against risks stemming from governance failures, changes in policy and regulation, and environmental and social trends.