Nearly two-thirds of institutional investors cite long-term financial returns as a key driver for investing in sustainability and impact strategies, more than any other driver, according to a new study from global investment manager Schroders, which shows a shift in focus on sustainable development. invest to seize opportunities, and not primarily as a risk management tool.
For the report, Schroders Institutional Investor Study 2023, Schroders surveyed 770 institutional investors across 36 regions worldwide, representing nearly $35 trillion in assets under management.
Of survey respondents, half reported that they have set net-zero greenhouse gas emissions targets for their portfolios, with 39% setting a target of net-zero emissions by 2050, while a further 30% have set a target for has committed to reducing emissions, or is in the process of drawing up plans to do so. . 21% of investors said they currently have no plans to set a net zero target, including 39% of North America-based investors.
According to the research, the belief that investing in sustainable investments is necessary to achieve long-term financial returns emerged as the most commonly cited reason, reported by 64% of investors, when asked to identify the top three drivers for investing in sustainable investments. and list impact strategies. , followed by portfolio diversification (62%) by investing in new sectors such as nature-based solutions or green hydrogen, and the desire to align portfolios with legal or regulatory guidelines (60%), such as the EU’s SFDR. American investors were mainly focused on returns: 74% cited financial returns as one of the most important reasons for investing in sustainability strategies, followed by diversification at 66%.
In addition to highlighting returns as a key driver, the research also indicated that increasing attention is being paid to considering sustainable investing as a source of opportunity and to the impact of their investments, with thematic investing emerging as the most preferred approach to sustainable investing, mentioned by 61%. of respondents, followed by impact at 59% – compared to only 34% in 2020 – and exclusion of certain activities or sectors at 54%.
The research shows that around two-thirds of investors believe that private asset investments will provide the best opportunities to target key trends such as the energy transition or impact investing, and to help achieve diversification objectives. Within private assets, infrastructure was currently identified as best suited to achieving sustainability and impact goals, cited by 44%, followed by natural capital and biodiversity at 41%, and private equity at 39%.
The survey also examined investors’ top criteria for selecting and influencing investments, with 60% reporting that they have an impact that can be easily measured and understood as the most important, followed by the impact of the investment on issues that are important for the ESG approach of investors (55%). , and with 52% an impact that is beneficial to stakeholders.
When asked about the external support their organizations will need to achieve their net zero targets, 51% of investors highlighted the need for support in measuring and tracking net zero targets, compared to 37% last year, followed by greater consensus needed around frameworks and methodologies to measure net zero pathways at 49%, and more guidance from regulators at 43%.
Andy Howard, Global Head of Sustainable Investment at Schroders, said:
“This year’s findings highlight that institutional investors are increasingly focusing on the thematic exposures and impact of their investments. This implies that customers want to approach sustainable investing in a more nuanced way than in the past. They increasingly view integration as a given and instead want to take advantage of more targeted opportunities. As the world grapples with regime change and the trends of deglobalization, decarbonization and demographics in the investment landscape, sustainability topics are becoming increasingly important, creating new opportunities for companies and investments that deliver sustainable products and services. As a result, investors are seeking to identify and allocate capital to these emerging sustainable investment themes.”
click here to access the Schroders Institutional Investor Study 2023.