More than half of professional investors still believe that incorporating environmental, social and corporate governance (ESG) factors into their investment strategies will limit their overall returns, according to a survey by NN Investment Partners (NN IP).

Across the sample, German investors were most pessimistic, with 80% saying responsible investment strategies would reduce investment returns. More than 70% of Italian and Dutch investors felt the same way, NN IP reported.

NN IP responsible investment survey

Source: NN Investment Partners

However, the asset manager also found that investors were willing to sacrifice returns to support ESG or responsible investing goals. On average, investors said they were prepared to forgo 2.4% a year if it meant their investments had a positive, non-financial, impact.

The €268bn Dutch asset manager argued that its own research had demonstrated that incorporating ESG factors into investment strategies did not necessarily negatively impact returns.

Jeroen Bos, head of specialised equities and responsible investing at NN IP, said: “While it is great to see that investors are prepared to give up a proportion of their returns to contribute to a more sustainable world, research actually shows that ESG integration does not automatically lead to lower returns.

“For example, a metastudy incorporating the conclusions from around 2,200 academic studies conducted between the early 1970s and 2014 revealed a positive relationship between corporate ESG scores and financial performance in the majority of cases (63%).”

Jeroen Bos, NN Investment Partners

“Research actually shows that ESG integration does not automatically lead to lower returns”

Jeroen Bos, NN Investment Partners

Claims that investors must surrender returns to engage in responsible investment were “flawed”, Bos added.

NN IP has established an academic collaboration with Yale University in the US to investigate the theme further, while a previous research partnership with the University of Maastricht reported that “integration of ESG factors such as momentum and focus on behavioural aspects in this area can improve risk-return of investment portfolios”, Bos said.

Speaking at the Principles for Responsible Investment’s annual conference in Paris earlier this month, Natixis Investment Managers CEO Jean Raby argued that asset managers were potentially spending too much time and resource searching for empirical evidence of ESG-linked outperformance.

“Perhaps we focus too much on trying to demonstrate empirically the answer to the question of the relationship between ESG and performance,” Raby said.

“I don’t need empirical evidence to convince me that if […] I make an investment in an entity that destroys the environment, doesn’t treat well its workers and has a governance that is full of conflicts of interest, then I cannot see that as a reasonable assumption of long-term sustainable performance.”

Further reading

ESG: Weight of evidence
There is no consensus on a positive link between ESG and improved portfolio performance, write MSCI’s Guido Giese and Linda-Eling Lee

Amundi: ESG investing ‘has influenced equity performance’
The ESG investing wave that is sweeping through Europe has started to affect supply and demand, with a subsequent effect on stock prices since 2014