Is ESG Investing Relevant in the Institutional Market?

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Environmental, social and governance (ESG) investing is continuing to impact the wealth management space. As individual investors become increasingly concerned with the ethics and environmental impact of the companies they are supporting, they are passing that concern on to the institutions that manage their investments. In fact, ProxyPulse*, a report by Broadridge and PwC, found a growing momentum of ESG proposals in proxy meetings in 2017. Following the US withdrawal from the Paris Climate Accord, the report also suggests an expected increase in questions from shareholders on environmental impact and climate change in 2018.

To keep a pulse on the growth in the ESG category, Cogent tracks interest in and usage of ESG investing among all the audiences we survey: financial advisors, DC plan sponsors, affluent investors and institutional investors. Specifically in the institutional market, we added a new question to this year’s US Institutional Investor Brandscape report, fielded late in 2017 and publishing this month. We asked institutional investors in the US how likely they were to adopt ESG investing in the next 12 months. We found that, while few institutions have already incorporated ESG in their portfolios, usage is considerably higher in the non-profit sector, where the approach to investing tends to be more mission-based than is typical among pensions.

Breaking down the findings a bit more, demand for ESG investing is greatest among foundations, as more than four in ten (43%) are likely to adopt such a strategy in the next year. Potential adoption is relatively higher among mid-sized pensions as well as non-profits with $500 million to less than $1 billion in assets.

ESG: Likely Adoption Next 12 Months

Interestingly, in a survey we conducted of pensions in Europe in mid-2017, we found substantially higher demand for ESG investing. In contrast to US pensions, three-quarters or more of European pensions are likely to incorporate ESG investing in their portfolios within the next year. Moreover, this strong interest in ESG investing is evident across pensions of all asset sizes. Yet relatively few European institutions say they have already incorporated ESG in their portfolios, suggesting that the category is poised for substantial growth.

With more interest in ESG investing and increased scrutiny from all angles on both the environmental and social impact of companies, the category is set for substantial growth both in the US and Europe. Firms specializing in this area will welcome this source of new assets in the coming year, and would do well to focus their attention on foundations and pensions outside of the US where interest is the greatest.

 

For more information on the upcoming US Institutional Investor Brandscape, review an overview of the report.

Review an Overview of the Report

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Linda York

About Linda York

Linda York is a senior vice president in the Syndicated Research division where she leads the Wealth Management Syndicated Research & Consulting practice. She has over 20 years of experience in financial services spanning responsibilities in finance, marketing and business strategy. Before joining Market Strategies, Linda was the practice director of Syndicated Research at Cogent Research, where she managed the product development and execution process for syndicated research projects and consulted with dozens of clients in the retail and institutional wealth management space. She earned an MBA in marketing from the University of Connecticut and a bachelor’s degree in mathematics from Mount Holyoke College. Linda is an avid equestrian and a two-time finisher of the Boston Marathon.

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