European investors stepping up responsible investment strategies

European asset owners are increasingly moving towards responsible investment strategies, according to a new survey that shows 72% of investors have drawn up formal responsible investment policies, an increase of 7% on 2013. 

Novethic published the survey at its annual event in Paris. It questioned 185 long-term investors, with over €6 trillion (£4.7tn) in assets in 13 European countries about their commitment to integrating environmental, social and governance (ESG) factors into asset management.

The findings show how the market is developing and beginning to encompass all areas. More than half of those involved in the survey integrate ESG criteria across all asset classes, including stocks, bonds and property. Half also now set ESG goals for their asset managers, twice as many as the previous year, whilst the same percentage monitor the ESG quality of their portfolio.

Whilst investors listed many motives for responsible investment, including contributing to sustainable development, managing long-term risks, and protecting their reputation, the increase in ESG criteria is partly responding to demand from investors, with 46% of investors now requesting an ESG report, up 15% on 2013.

The risk around carbon assets was flagged up as a particular concern voiced by almost a third of participants. However, just 10% are reducing their exposure to carbon risk.

Reports have been building the case for fossil fuel divestment because of the ‘carbon bubble’ risk. The term ‘carbon bubble’ refers to the risk of investing in fossil fuel companies when the need to leave the majority of fossil fuel reserves in the ground in order to tackle climate change is factored in.

According to the survey, governance issues top the topic most engaged on with 85% of respondents speaking to companies on this issue, followed by 61% engaging on this issues around labour risks from the supplier chain. Water resource risk and carbon risk were topics that 28% and 23% of investors respectively engaged on.

Some 21 of the survey respondents were from the UK, representing assets of €604 billion (£385bn), and 81% of these asset owners said they have a formal ESG policy, a higher percentage than the European average. Whilst responsible investment continues to grow in the UK, an exclusion strategy remains rare.

Photo: milena mihaylova via Flickr 

Further reading:

Study links high ESG ratings to positive investment portfolio performance

Investment trustees should consider ESG factors, concludes Law Commission

MSCI seeks to strengthen ESG investment research with acquisition

Impact investment: ESG practices increase risk-adjusted returns in the long-term

63% of UK investors want to be offered sustainable investment options