GLOBAL – Nearly one-third of investors in the annual survey by environmental, social and corporate governance (ESG) research centre Novethic cite long-term risk management to justify their integration of ESG criteria.
Long-term risk management, favoured over a more general contribution to sustainable development, has steadily gained in importance over the past three years because investors are gradually becoming aware that they should assess the economic impact of social and environmental crises.
The findings also indicate that investors are less motivated to use ESG integration as a means of protecting their reputation (only 17% do) or boosting financial performance (9% do).
The survey shows that norms-based exclusions dominate ESG practices, with 57% of investors stating that they exclude companies guilty of serious violations of human rights or major damage to the environment.
The most common exclusion is controversial weapons, such as anti-personnel mines and cluster bombs.
Ethical, sector-based exclusions such as tobacco, alcohol and weapons, are practised by 47% of investors.
These methods are often combined with engagement approaches – 54% of the investors surveyed implement such a combination.
A best-in-class approach, which is particularly widespread in France and Germany, is applied by 37%.
Environmental investments vary from country to country.
German and Dutch asset owners are the most inclined to use them, but only one-third of the European sample indicates having green investments.
The results are similar for social investments, with 34% of investors applying them.
The number of firms with a charter or formal responsible investment policy rose from 42% in 2011 to 61% in 2012, and nearly 20% plan to define one within the next year.
These policies are increasingly handled at a high management level.
Senior investment managers oversee them at nearly one-third of the firms in the sample, while the board of directors does so for 17%.
Less than one-third of the investors surveyed have an in-house ESG analysis team.
Those that delegate the management of their responsible investment policy primarily use exclusion lists (40%).
Dedicated RFPs take second place (29%).
Regarding the breakdown of asset classes, investors systematically apply ESG criteria as follows: 54% for equities, 45% for corporate bonds and 31% for government bonds.
Novethic surveyed 115 executives from leading financial institutions in 11 countries with approximately €4.5bn in assets under management.
The study can be found here.