As a growing number of institutions move toward full ESG integration, new insights from a Coalition Greenwich study provide learning on the complexities faced by investors on measuring the impact of their sustainable investments and the role of asset managers to help them navigate these challenges and demonstrate their commitment to sustainability.
While the demand for sustainable investments continues to surge globally, a recent study by Coalition Greenwich, commissioned by AGF, demonstrates just how far institutional investor practices have evolved providing valuable insight into the goals and needs of our investor base.
In the study conducted amongst institutional investors in North America and Europe, only 1 in 5 institutions indicated that they were employing sustainability criteria across all assets five years ago. Today, nearly half (47%) of asset owners apply sustainability metrics to all their portfolios. And in five years’ time, about two-thirds of asset owners expect to be employing sustainability metrics, including 40% who are planning to “fully integrate” sustainability criteria into their portfolios and investment processes.1
Understanding expectations among institutions today can provide a valuable snapshot of what sustainable investing may look like in the future and in turn helps inform us here at AGF of the capabilities we need to continue to invest in to remain at the leading edge of sustainable investment offerings.
As an example, institutions looking to allocate to sustainable strategies are now digging deeper into asset managers’ overall business practices and investment processes to separate true ESG commitment from “greenwashing”. They are asking questions such as “Does the manager maintain its own internal ESG research capabilities and conduct proprietary ESG analysis?” and “Has the manager demonstrated a pattern of active ownership through proxy voting?” This can provide an opportunity for asset managers to address these expectations by continuing to invest in evolving policies and processes including a focus on increasing measurement and reporting of specific outcomes.
Interestingly, although nearly 90% of asset owners believe climate change will have a meaningful impact on their portfolios, fewer than half of institutions are actively working to manage climate risks.1 Allocations to thematic strategies, an approach that invests in sustainable businesses that are related to and likely to benefit from specific impact themes such as energy efficiency and clean fuels, can be an effective way at generating impact in these critical areas.
In fact, the study revealed that increasing numbers of institutions have started to incorporate allocations to sustainable thematic investment strategies given their potential to enhance impact levels, diversify portfolios and provide an additional source of alpha generation. 33% of respondents stating thematic strategies provide greater impact than ESG integration approaches and 22% believe these strategies can identify investment trends earlier than other approaches.
It’s encouraging to see the increased appetite for thematic strategies as we continue to invest in, and further build out, our sustainable investment platform which currently includes global equity and balanced strategies. AGF has been a long believer, three decades in fact, that exposure to thematic opportunities arising from the ongoing transition to a sustainable economy can result in a positive environmental and societal impact alongside the potential for attractive returns.
Thank you to Coalition Greenwich for the terrific partnership and to the institutions that took the time to share their valuable insights. Research of this nature is integral to our learning process at AGF and further informs how we evolve to meet the goals and expectations of our client base. To learn more about the evolution of ESG thinking and the role of thematic strategies for investors seeking to increase the impact of their portfolios, click to download the full report – Targeting Impact: Integrated ESG and the Role of Thematic Strategies in Asset-Owner Portfolios.
To learn more about our sustainable investing capabilities, please click here.
Related: The Risk and Resilience of Markets
1 Source: Coalition Greenwich 2021 Sustainable Investing Study, August 2021.
The study that this report is based on was commissioned by AGF Investments Inc. (“AGF”) and conducted by Coalition Greenwich, a division of CRISIL. As the author of this report, Coalition Greenwich owns, maintains, and is solely responsible for the content, and (“AGF”) or its affiliates assume no responsibility for the accuracy of the information within. This report is provided for informational purposes only and is not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting or tax. The comments should not be construed as recommendations to invest in any products or services but rather an illustration of broader concepts.
The commentaries contained herein are provided as a general source of information based on information available as of August 10, 2021 and should not be considered as investment advice or an offer or solicitations to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change investment decisions arising from the use or reliance on the information contained herein. Investors are expected to obtain professional investment advice.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.