Institutional investors believe ESG factors improve risk-adjusted returns and play an important role in alternative investment allocations
The majority of institutional investors actively consider ESG criteria when making alternative investment allocations, according to a survey by LGT Capital Partners and Mercer. The survey of 97 institutional investors in 22 countries, also found that most believe ESG improves risk-adjusted returns and is an important aspect of risk and reputation management. Titled “Global Insights on ESG in Alternative Investing,” the research focuses on why and how institutional investors incorporate ESG considerations in alternative asset classes.
The key conclusions include:
- ESG factors are actively considered by a large majority of institutions investing in alternative assets. More than three-quarters of respondents (76%) incorporate ESG criteria when investing in alternative asset classes.
- Fifty seven percent of respondents believe that incorporating ESG criteria has a positive impact on risk-adjusted returns, while only nine percent think that it lowers them.
- Issues that have the potential to impact a company’s long-term risk, reputation or overall performance are viewed as significant. Topics such as carbon intensity, controversial weapons and bribery and corruption garner strong support, while exclusion criteria, such as alcohol or tobacco, are rarely considered.
- More than half (54%) of institutional investors who incorporate ESG criteria into investment decision-making have done so for three years or less, which suggests rising expectations for investment managers over time. Greater clarity on techniques and strategies for ESG incorporation would help investors progress more quickly.
“CIOs, heads of asset classes and portfolio managers of large and small institutions from 22 countries clearly recognize the positive effects of ESG integration on risk-adjusted returns. This shows that ESG analysis has moved beyond ethical concerns and has firmly found its place as a risk and investment management topic. Given the high rate of recent adoption of ESG and broad interest in the topic, we can safely assume that ESG integration will continue its rapid expansion,” said Tycho Sneyers, Managing Partner and Chairman of LGT Capital Partners ESG Committee.
“It is encouraging to see investors becoming increasingly aware of the potential risks and opportunities these issues can present to portfolios. Incorporating ESG considerations into investment decisions strengthens a portfolio’s defense against risks arising from governance failures, changes in policy and regulation, and environmental and social trends. It can also put investors in a better position to take advantage of opportunities arising from a shift towards more sustainable economic growth,” commented Deb Clarke, Global Head of Investment Research at Mercer.
LGT Capital Partners
LGT Capital Partners is a leading alternative investment specialist with USD 50 billion in assets under management and more than 400 institutional clients. A large, international team is responsible for managing a wide range of investment programs focusing on private markets, liquid alternatives and multi-asset class solutions. Headquartered in Pfaeffikon (SZ), Switzerland, the firm has offices in North America, Europe and Asia.
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in more than 40 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @MercerInsights.