ESG integration levels accelerate globally, but scepticism on performance leaves US lagging.
Investors are looking for companies to disclose more details about worker safety, employee health benefits, workplace culture and other social factors in response to the Covid-19 pandemic.
More than half (53%) of respondents to the 2020 RBC Global Asset Management Responsible Survey said they want more data on metrics relating to social risks due to Covid-19, while 33% of investors said companies should continue with enhance disclosures beyond the pandemic. Three in ten said the pandemic had led them to place more importance on ESG factors.
“In this year’s data we are already seeing a greater demand for disclosure on employee health and safety and we expect that the effects of Covid-19 will have implications on investor sentiment for years to come,” said Melanie Adams, Head of Corporate Governance and Responsible Investment at RBC Global Asset Management.
Although the pandemic may have encouraged some investors to take greater note of ESG factors, social metrics are not necessarily top of mind. For the 36% of respondents who are more closely focused on specific ESG factors due to the pandemic, the top three factors cited were supply chain risk (43%), climate risk (37%) and workplace culture (31%).
The survey found investors supportive of board level diversity, with 49% favouring board minority diversity targets, versus 28% in opposition; board gender diversity targets were backed by 49%, with 26% opposing. Respondents were evenly split on how to bring more diversity to corporate boards with about one-third favouring either shareholder proposals or market forces.
The greater attention of investors to social factors is set in the context of higher rates of adoption of ESG factors. According to the RBC GAM survey, three quarters of institutional investors incorporate ESG principles into their investment process, up from 70% in 2019. Over 84% of survey respondents said they believe ESG integrated portfolios perform as well or better than portfolios that do not integrate ESG.
But US respondents are more sceptical of the performance of ESG integrated portfolios; only 74% (down from 78% in 2019) believe they perform as well or better than non-ESG funds. US investors are also less likely on average to say ESG integrated portfolios can generate long-term sustainable alpha or effectively mitigate risk.
US investors also continue to lag behind their global counterparts in the adoption of ESG strategies. Only 65% of US respondents have integrated ESG strategies into their portfolios whilst Europe’s respondents have a 94% integration rate.
The biggest single ESG-related risk identified by respondents was anti-corruption, followed by climate change and shareholder rights, which tied for second.
The report was based on the responses of more than 800 institutional asset owners, investment consultants and investment professionals in the United States, Canada, Europe and Asia between June and August 2020.