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ESG Adoption Increases Globally, While COVID-19 Impacts How Investors Look at Social Factors, RBC Global Asset Management Survey Finds

Institutional investors are also increasingly turning their attention towards impact investing

Key Highlights:

  • 75% of institutional investors incorporate ESG principles into their investment process, up from 70% in 2019
  • Investors globally are becoming increasingly convinced that ESG integrated portfolios can mitigate risk and increase returns. Over 84% of survey respondents believe ESG integrated portfolios perform as well or better than portfolios that do not integrate ESG
  • While most major markets are increasingly embracing ESG, the US continues to diverge, with ESG adoption in the US stalling. Nearly 26% of US investors also expressed skepticism about ESG’s performance merits
  • The COVID-19 pandemic is beginning to influence views on ESG adoption, and investors are looking for more company disclosures around “social” factors such as employee health care
  • Anti-corruption is now the top ESG concern for institutional investors

TORONTO, October 14, 2020 — The adoption of environmental, social and governance (“ESG”) integration continues to grow globally, but US institutional investors are becoming more skeptical of its performance merits, according to the 2020 RBC Global Asset Management (“RBC GAM”) Responsible Investment Survey.

Compared to 2019, there is an increase in the percentage of institutional investors who believe ESG integrated portfolios are likely to perform as well or better than non-ESG integrated portfolios in Canada (97.5% up from 90%), Europe (96% up from 92%) and Asia (93% up from 78%). However, respondents in the US are more skeptical of the performance of ESG integrated portfolios, as only 74% (down from 78% in 2019) believe they perform as well or better, and over a quarter of US respondents (up from 22% in 2019) believe ESG integrated portfolios perform worse.

This trend was also evident when respondents were asked about the ability of ESG integrated portfolios to generate long-term sustainable alpha and to mitigate risk. The majority of institutional investors in Canada (70%), Europe (72%) and Asia (71%) believe adopting ESG factors can help generate long-term sustainable alpha, while investors in the US are not as convinced, with nearly 60% saying they don’t believe or are not sure. When asked about the ability of ESG integrated portfolios to mitigate risk, just over half (53%) of US investors believe it can help, while investors in Canada (87%), Europe (85%) and Asia (65%) are much more convinced.

The ongoing COVID-19 pandemic is beginning to influence investors’ views about ESG. While the importance placed on ESG considerations hasn’t changed for the majority of investors, over 28% said COVID-19 has made them place more importance on ESG considerations, making this a notable factor that is new in 2020. Also of note, 53% of investors are looking for companies to disclose more details about worker safety, employee health benefits, workplace culture and other social factors due to the pandemic. 

“As we analyze the trends in our year-over-year survey data, we’ve found that a growing majority of institutional investors are convinced of the merits of ESG adoption in their investment approach,” said Melanie Adams, Vice-President and Head of Corporate Governance and Responsible Investment at RBC Global Asset Management. “A new trend to follow going forward is how the COVID-19 pandemic will influence investors. In this year’s data we are already seeing a greater demand for disclosure on employee health and safety and we expect that the effects of COVID-19 will have implications on investor sentiment for years to come.”

Global Highlights

Other key findings from the survey include:

  • Investors are paying closer attention to supply chain risk during the pandemic: For the 36% of respondents who are more closely focused on specific ESG factors due to the pandemic, the top three factors cited were supply chain risk (43%), climate risk (37%) and workplace culture (31%).
  • Support for diversity and inclusion targets for corporate boards remains strong: During a time with renewed focus on Black Lives Matter and racial justice issues, more respondents favoured board minority diversity targets (44%) than opposed them (28%). Similarly, more respondents favoured board gender diversity targets (49%) than opposed them (26%).
  • Investors plan to focus more on impact investing: Since last year, there’s been an increase in the number of investors who expect to allocate funds to impact investing solutions. This year 40% of investors said they plan to allocate more money to impact investing products in the next 1 – 5 years, an increase from the 28% who said the same a year ago. European respondents expressed significant interest, with 63% planning to allocate money to impact investing products in the near future.
  • European investors lead on climate risk in investment policies: Globally, about 72% of respondents responded “no” or “not sure” when asked if their investment policy addresses climate risk. The significant outlier was Europe, where nearly 65% of respondents addressed climate risk in their investment policy.
  • Investors demand more climate-related investment solutions: Over 80% of survey respondents across US, Canada, Europe and Asia responded “no” or “not sure” when asked if there are sufficient climate-related investment products available. When looking at different climate-related strategies, investors are most interested in the following: renewables (55%), carbon neutral or low carbon strategies (54%), transition strategies (48%) and fossil fuel free strategies (36%).
  • Anti-corruption is a top concern: The RBC GAM survey asked respondents to rank which ESG issues they are concerned about when investing. Anti-corruption was ranked first globally, followed closely by climate change and shareholder rights, which tied for second.

“We are seeing investors concerned with a wide range of ESG factors, from anti-corruption to climate change and shareholder rights. By understanding the complexities of these factors on corporate value creation, investors can make better long-term investment decisions,” said Habib Subjally, Senior Portfolio Manager and Head of Global Equities at RBC Global Asset Management (UK) Limited. “What is notable in the results this year is that a vast majority of institutional investors are interested in how climate-related considerations are factored into their investments. We think this presents an important opportunity for asset managers, financial advisors and consultants to speak with their clients about how climate-related considerations can play a part in their investment goals.”

Global Adoption – Regional Divide is RBC GAM’s fifth annual survey of institutional investors’ perceptions regarding responsible investment. For this year’s report, RBC GAM, which includes BlueBay Asset Management, surveyed 809 institutional asset owners, investment consultants and investment professionals in the United States, Canada, Europe and Asia between June and August 2020.

About RBC Global Asset Management
RBC Global Asset Management (RBC GAM) is the asset management division of Royal Bank of Canada (RBC) and includes RBC Global Asset Management Inc., RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited, RBC Global Asset Management (Asia) Limited, and BlueBay Asset Management LLP, which are separate, but affiliated subsidiaries of RBC. RBC GAM is a provider of global investment management services and solutions to institutional, high-net-worth and individual investors through separate accounts, pooled funds, mutual funds, hedge funds, exchange-traded funds and specialty investment strategies. The RBC GAM group of companies manage approximately $520 billion CAD in assets and have approximately 1,400 employees located across Canada, the United States, Europe and Asia.