More than two-thirds of the 475 institutional investors surveyed by SSGA said integrating ESG criteria into their decision making boosted returns. Investors demonstrated a no-compromise approach when it came to performance: 75% said they expect their ESG strategies to deliver the same returns as other investments. And a vast majority (more than 80%) said they are satisfied with the financial performance of their ESG strategy+.
Accelerating ESG: Barriers and Opportunities
However, many investors express concerns about the available data and tools with which to measure that performance.
“There is a proliferation of different types of ratings and other measures, and we expect that these may give conflicting results,” said a respondent from a Norwegian mutual pension fund. “We’re currently in a process of disruption that’s really necessary in order to clarify how to measure investments on ESG quality. Eventually, the best standard will win, but we’re not there yet.”
So while there is a sense among investors that current difficulties around performance assessment are part of the evolution process for what is a relatively new investment framework, it’s clear that the inconsistency of measures constitutes a barrier for further adoption of ESG.
The Way Forward
The survey shows that impetus to move towards ESG may be clear, but the best path for investors to take sometimes isn’t. A successful ESG strategy goes beyond pure investment management. Institutions need to align internally on their ESG objectives, as well as manage implementation across strategy selection, construction and execution. Quality partnerships and ongoing dialogue — with both peers and providers — will be crucial to helping more investors to harness the potential of ESG.
“When moving toward greater ESG integration, we recommend taking a 360-degree view of your portfolio and plan,” said Chris McKnett, Head of SSGA's Global ESG Business Group. “Your mission and values, the needs of your beneficiaries, your time horizon, current holdings and future goals can each help inform your approach to ESG.”
Find out how ESG can add value to your portfolio. Get the full report.
*Source: GSIA. 2016 Global Sustainable Investment Review.
+ This view is not a testimonial of satisfaction with our advisory services and should not be interpreted as a statement of experience or an endorsement by a client, but rather an opinion on ESG investing in general. In fact, many respondents are not clients of SSGA.
Capital Allocation for Social Change: The SSGA Gender Diversity Index
Research shows that men and women think, lead and solve problems differently. Research has also indicated that deploying these different approaches in concert can lead to better decisions, greater innovation and potentially, stronger business results.*
Today investors have an opportunity to express their views on gender diversity in their investments through the SSGA Gender Diversity Index. The index focuses on the largest US companies that have the highest levels within their sectors of senior leadership gender diversity. Because the index methodology groups firms with more diverse leadership at the sector level first, the index is designed to provide broad sector-level diversification similar to the Russell 1000 Index, and may be well-suited for a core-oriented exposure. Through the SSGA Gender Diversity Index, investors have the opportunity to reward companies that promote gender diversity by allocating capital toward those companies as well as harness the attractive return potential of companies with above-average female leadership within an investment strategy.
*”Why Diversity Matters.” Catalyst Information Center. 2013. Accessed on February 7, 2017 at: http://www.catalyst.org/system/files/why_diversity_ matters_catalyst_0.pdf. Woetzel, Johnathan. “The Power of Parity: How advancing women’s equality can add $12 trillion to global growth.“ McKinsey Global Institute, September 2015. Accessed on February 7, 2017 at: http://www.mckinsey.com/global-themes/employment-and-growth/how-advancing-womens-equality-can-add-12-trillion-to-global-growth
About the survey: In December 2016 and January 2017, Longitude Research, in association with State Street Global Advisors (SSGA), surveyed senior executives with asset allocation responsibilities at 475 institutions. They included private and public pension funds, endowments, foundations and official institutions. The survey was conducted by a combination of telephone interviews and online. The results were analysed and collated by Longitude Research and supplemented by a series of in-depth interviews. The survey explored institutional investors' attitudes toward ESG adoption. It sought to gain insights into their strategic approach, asset allocations, performance measures and challenges.
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