Over half of investors surveyed in Fidelity International‘s Professional Investor DNA Survey still consider environmental, social and governance (ESG) factors as important when it comes to portfolio asset allocation over the next 18 months.
In partnership with Crisil Coalition Greenwich, Fidelity’s survey sought the opinions of over 120 institutional investors and intermediary distributors across Europe and Asia, on investor appetite for incorporating ESG considerations into portfolio allocations.
Environmental factors were the top consideration, with two-thirds (63%) of investors considering it as important, with Governance (58%) and Social (51%) following suit. Leading the pack are European and institutional investors putting more emphasis on ESG criteria in portfolio asset allocation.
Looking into sustainability themes, the study revealed further investor focus on environmental considerations, with decarbonisation and the energy transition, alongside the preservation of natural capital, ranked in the top three themes in focus. Fidelity said this was likely driven by ongoing investor and policymaker commitments to reach net zero carbon emission goals.
Corporate transparency was ranked in second place overall, which underpins investors’ desire for strong corporate governance, according to Fidelity.
Barriers to investing sustainably
While ESG was seen as important in asset allocation, barriers remain. Difficulty measuring impact was seen as the biggest barrier to investing sustainably (68% in total). Meanwhile, 52% of investors mentioned changes to or inconsistent regulations as a key barrier. In Asia, 66% of investors felt the lack of supply of quality strategies/products was a barrier – compared to only 31% in Europe.
Jenn-Hui Tan (pictured), chief sustainability officer at Fidelity International, commented: “Our study shows ESG remains firmly on investors’ minds. While ESG investing may now be viewed as a mainstream consideration in asset allocation, further progress is needed to break down implementation barriers. This includes difficultly measuring impact, with observations pointing to difficulties sourcing and analysing good quality company data, and navigating regulation, where discrepancies remain across national, European and global regulatory frameworks.
“We continue to support increased data transparency and standardisation, and the harmonisation of global regulatory regimes that enable decision-useful disclosure. We also champion for greater focus on policies driving real world outcomes, complementing the role of enhanced disclosures in guiding investor choices.”
Challenges and barriers to sustainable investing
When asked about the most efficient way to create positive impact, the jury was out, with investors citing several ways, from impact investing (59%), exclusionary screening (52%), individual company engagement (44%) and government policy & regulation (44%), highlighting the multifactor approach needed when it comes to driving change.
Jenn-Hui Tan, added: “The integration of sustainability into investment research and portfolio construction is important as it can impact long-term value creation and drive better client outcomes. As an active manager and steward of client capital, we have a part to play in moving towards a more sustainable economy that better takes into account system-level risk but as the study highlights, there is no one way to achieve this. This is why effective stewardship combines bottom-up, thematic and system-wide approaches.
“We are in the process of developing an enhanced engagement framework to better measure the depth and quality of our engagements against specific objectives over time, allowing us to move towards a more outcomes-based engagement approach.”
