ESG may entice investors to save more – Natixis Global Asset Management

The rising importance placed on environmental, social and governance investing may be the key driver in getting more individual investors, across generations, to invest more or even start planning for retirement, suggests new findings from Natixis Global Asset Management’s 2017 ESG Report.

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The report surveyed more than 10,000 individuals from 22 countries across three investor populations, including institutional decision makers, financial advisors, individual investors and participants in defined contribution plans in the U.S.

  • Investors increasingly want investments to reflect personal values, with some stating access to ESG may actually increase retirement plan participation1
  • Professional investors say ESG becoming standard practice; looking for alpha and risk management2
  • Better measurement and reporting on both financial and non-financial performance will speed adoption

Dave Goodsell, executive director of the Durable Portfolio Construction Research Center at Natixis Global Asset Management says: “Individuals tell us that they want their investments to reflect their personal values. The environmental, social and ethical records of the companies included in their investment portfolios clearly matter to investors. We also see the potential for incorporating strategies that consider ESG criteria to incentivize younger investors to increase their participation in company-sponsored retirement plans. More than eight in ten (84%) Millennials in the U.S. say they would save more for retirement if their plan offered an ESG option. We see a real desire to ensure that their money does social good.”

Three-quarters of global investors say it is important that they invest in companies that reflect their personal values – an opinion held consistently across gender, generation, and wealth bands within the survey population.

The findings show a large majority stress the importance of investing in companies with sound environmental records (70%), companies that are seen as doing social good (71%), and companies that are ethically run (78%). In addition, 71% are interested in making investments that help to fund advancements in healthcare and education.

Additionally, there is a gap in the sentiment between how men and women perceive ESG and its framework within their portfolios. A slightly larger percentage of women (76%) are concerned with ESG factors compared to men (72%). Overall, there is a three- to fivepoint difference in opinions between the sexes across all factors.

Given the recent examples of Volkswagen, Mylan, and Theranos that have made headlines since 2015, investing in ethically run companies is where respondents place the greatest emphasis, with 81% of women saying it is important including 31% who say it is very important.

There is a pronounced desire among U.S investors to invest in ESG factors and a 17-point difference between investors who use financial advisers (76%) and those who are selfdirected (59%).

The Natixis report also highlights that although ESG may not be as familiar to financial advisers as traditional investment strategies, the discipline is gaining more attention within the financial services industry. Forty percent of advisers globally are already using ESG to mitigate governance and social risks. Additionally, institutions surveyed anticipate a greater role for ESG, with six in ten predicting that it will become standard practice for their organization within the next five years.

In terms of portfolio management, 55% say there is alpha to be found in ESG, while 57% say ESG can help mitigate headline risks.

“Environmental, social, and governance (ESG) investing is taking on broader dimensions over recent years, and it is going far beyond the old one-dimensional negative screens of socially responsible investing (SRI) to proactively manage portfolio risk and identify new investment opportunity,” said Matthew Shafer, Executive Vice President of International Distribution for Natixis Global Asset Management.

Still, the investment community faces great challenges when it comes to successful implementation of ESG measures. Reporting on both financial and non-financial performance ranks as a top hurdle for institutions, while advisers are challenged by the lack of a sufficient performance track record.

However, the increasing number of fund ratings bureaus and research houses introducing tools to address monitoring and measurement of ESG factors is helping to reduce the difficulty of performance reporting.

While the dialogue on ESG may focus on screening out opportunities, institutions have an eye on sustainability as an investment theme. When asked which sectors of the private equity markets will present the best opportunities in 2017, 34% look to infrastructure, just behind technology, media and telecommunications. More than three-quarters say institutional investors will play a greater role in funding infrastructure projects.

“We need to ultimately get past the mind-set that ESG is merely the act of blocking out companies through negative screens. It is clear that there are substantial opportunities for ESG and both individuals and institutions will agree that demographics shifts, burgeoning industries and sustainable growth initiatives are attractive on both an investment level and a social level. If enticing investors to save more by offering ESG elements is the catalyst that solves the savings crisis in some developed economies – then we need to start thinking about ESG as here to stay,” said Matthew Shafer.

Next Finance June 2017

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