The latest report by global investment manager Schroders unveils a decisive turn in the realm of sustainable investing.
According to ESG Today, the Schroders Institutional Investor Study 2023, which encompassed the views of 770 institutional investors worldwide, managing nearly $35tn in assets, indicates a significant shift towards sustainable and impact investing strategies, driven predominantly by the prospect of long-term financial returns.
A standout revelation from the study is that 64% of investors now view sustainable investing as a pathway to achieving substantial long-term financial gains. This perspective has superseded the traditional approach of using sustainable investing chiefly as a risk management tool. This evolution underscores a broader, more opportunity-oriented view among investors, highlighting areas such as thematic investing, now preferred by 61% of respondents, and impact investing, which has seen its relevance jump significantly from 34% in 2020 to 59% in the current study.
Adding complexity to the sustainable investing landscape, the report reveals that half of the survey participants have established net zero greenhouse gas (GHG) emissions targets for their portfolios. This includes an ambitious 39% with a strategy to reach net zero by 2050. Nonetheless, a notable proportion, 21%, have no current plans to set a net zero target, a stance more prevalent among North America-based investors, of whom 39% have expressed this view.
The report further explores the nuances of portfolio diversification, with 62% of investors leveraging sustainable investing to tap into new sectors, including nature-based solutions and green hydrogen. This strategy is particularly pronounced among U.S. investors, 74% of whom prioritise financial returns as a compelling reason to adopt sustainable investment strategies.
Schroders’ comprehensive study also delves into the criteria institutional investors consider paramount when selecting sustainable and impact investments. Top of this list is the ability to easily measure and understand the impact (60%), followed closely by the investment’s resonance with their environmental, social, and governance (ESG) approaches (55%).
Reflecting on the paradigm shift, Schroders Global Head of Sustainable Investment Andy Howard said, “This year’s findings highlight that institutional investors are increasingly focused on the thematic exposures and the impact of their investments. This implies clients want to take a more nuanced approach to sustainable investing than in the past. They increasingly consider integration to be a given and instead want to take advantage of more focused opportunities.
“As the world grapples with regime shift and the trends of deglobalisation, decarbonisation and demographics on the investment landscape, sustainability themes are becoming increasingly important, creating new opportunities for companies and investments that provide sustainable products and services. As a result, investors are looking to identify and allocate capital to these emerging sustainable investment themes.”
The insights from Schroders’ 2023 report illuminate the evolving dynamics in sustainable investing, marking a departure from risk-averse strategies to opportunity-driven investment approaches, centred around financial returns and global sustainability trends.
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