Mercer study shows increased international interest in responsible investing
January 13, 2012 at 1:47 pm brownflynnwinner 2 comments
Yesterday the Financial Times published an article stating that U.S. investors are ramping up their efforts around environmental, social and governance (ESG) factors, particularly in regard to climate change, according to a new Mercer study.
Historically U.S.-based investment institutions have lagged behind their European counterparts in implementing ESG strategies. Of the more than 915 institutions that signed the UNPRI, only 63% went on to follow the allocation guidelines.
The Mercer study entitled: “Climate Change Scenarios – Implications for Strategic Asset Allocation“, looks at 12 institutional investors with more than $3 trillion under management combined and tracked their investment behavior over the past year with regard to ESG. The study found that 80% of the institutions have increased, or will soon increase, their ESG-related engagement with either asset managers or directly with companies. This is to better understand the inherent climate risk in various strategies.
The increased demand for ESG strategies is likely due to recent market volatility, which has institutional investors searching for sustainable investment products. “Turbulence in the financial markets, issues like BP and Fukushima, and climate change are behind it, no doubt,” says Neil Johnson, U.S. managing director of Sustainable Asset Management, a $13 billion Robeco subsidiary that specializes in responsible investing.
“Collecting the material non-financial information [on climate risk] that helps you make a better informed stock selection decision in order to build a portfolio that will add value is gaining interest. Institutional investors are catching up with the thought that there’s alpha to be had, and risk mitigation and just a good sustainable, long-term way to invest,” Johnson says.
Are you surprised by the results of this study, or does it align with trends we’ve been seeing recently? Do you think we will see an even bigger increase in investor interest in 2012? Discuss!
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Entry filed under: Best Practices, Business, Socially Responsible Investing (SRI). Tags: climate change, climate risk, Environmental, ESG, ESG investing, Financial Times, insitutional investors, investors, Mercer, Neil Johnson, non-financial information, Responsible Investing, Robeco, social and governance, Socially Responsible Investing, Sustainable Asset Management, UNPRI.
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Raj Thamotheram (@RajThamotheram) | February 11, 2012 at 8:05 pm
To find out what investors are really interested in, look at what the core investment research supply chain analyse – they are very responsive to the real signals coming from clients.
By core I mean sell side research and credit rating agencies.
And the answer isn’t consistent with the story in this blog. US mainstream research suppliers are even further behind than their European peers, and its not that things are so well developed in Europe!
BP is a great case study of this. Even after all the warning signals (incl the Baker Commission highlighting concerns over safety culture after the Texas explosion) the mainstream analysts largely ignored this factor. See this excellent paper by behavioural finance expert, Hersh Shefrin:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1769213
So I’m rather suspicious of “biggin’ up” of interest in ESG mainstreaming. Its understandable since both PRI asset owners and the specialist service providers have reputational interests at stake. But what counts is impact on the direct investment supply chain and putting in place processes which transform the system (eg who has access to broker votes).
We need to focus more on the walk, the talk is already well addressed!
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brownflynnwinner | February 13, 2012 at 10:36 am
Thank you for your comment and provided research. We will certainly look into this for clarification on the topic.