Environmental, social and governance (ESG) considerations in investment decisions are growing in importance and could help increase retirement plan participation and contribution rates, according to results from Natixis Global Asset Management’s 2017 ESG Report.
The survey of 7,100 individuals from 22 countries consists of institutional decision makers, global financial advisors and individual investors, and U.S.-based DC plan participants. The objective was to develop a picture of how both professional and individual investors feel about the role and impact of ESG.
Overwhelmingly, individual investors have a favorable view of ESG, according to the findings. More than 8 in 10 individuals who participated in the survey said they would like to have their investments reflect their personal values and three quarters of respondents said they would like to see more socially responsible options included in their retirement plan. Moreover, 67% of respondents with access to a plan who do not participate said they would start contributing. Six in 10 participants said they would increase their current contribution rate if they knew their investments were doing social good.
While individual investors were strongly in favor of ESG, Natixis said the findings show a “distinct split in the views of professionals and individuals that challenges conventional thinking about ESG.”
Professionals at institutions and within the investment community appear to be “more skeptical” about the effectiveness of ESG, citing concerns about performance measurement. The authors suggest that the split may be based more on “semantics” rather than on investment performance. They explained that many may still associate ESG with negative screening, which looks to exclude certain sectors from investment, such as so-called “sin” stocks.
The survey found that 31% of U.S. advisors and 40% globally are currently using ESG as a way to alleviate governance and social risks. In looking to the future, however, these numbers rise considerably, with 6 in 10 professional investors predicting ESG will become standard procedure for their company in the next five years.
As to portfolio management, the findings show that slightly more than half of investor respondents believe ESG can help mitigate headline risks and that there is alpha to be found in ESG.
Meanwhile, reporting on both financial and non-financial performance is seen as a top hurdle for institutions in terms of implementing ESG, and advisors are challenged by the lack of a sufficient performance track record, according to the findings. To address these difficulties, the report advises that major fund ratings bureaus and research houses are introducing tools to address monitoring and measurement of ESG factors.
