Since the outbreak of the Covid crisis, institutional investors have been increasingly looking towards sustainable funds. However, risk management is proving a major challenge, according to a study by asset manager Schroders.
Since the outbreak of the pandemic, about half of the institutional investors have paid more attention to sustainable investment. This view is particularly strong in Europe, where 62% of institutional investors attach greater importance to SRI in the wake of the coronas crisis. This is evident from the annual Institutional Investor Study by asset manager Schroders, based on a global survey of 750 respondents. “The pandemic has affected all aspects of life and SRI is no exception. As a result of Covid-19, investors are now paying closer attention to ensuring their assets are invested in the most sustainable way possible. The global economy is still a long way from pre-pandemic levels, but many respondents believe the recovery should be sustainable,” said Andy Howard, global head of SRI at Schroders.
Pain points
Yet institutional investors still see several challenges when it comes to SRI. Greenwashing remains the most difficult issue, with 59% citing it as the biggest obstacle, almost as many as last year. Furthermore, 46% of investors worldwide doubted whether it is possible to measure and manage the risks of sustainable investment. This is considerably more than the 33% in 2020. A lack of transparency is also a major concern for 53% of institutional investors. Howard: “It is clear that asset managers have a lot of work to do to support this change. They must ensure that the doubts or hesitations that clients have when it comes to SRI are completely removed by increasingly clear reporting and disclosure.”
Return
The conviction that SRI has a negative impact on returns seems to be fading away. This fear has subsided for the fourth year in a row. Some 38% of institutional investors have doubts about the return of SRI, compared with 48% in 2019. Howard: “It has been our conviction for years that SRI and a strong focus on solid returns need not be mutually exclusive. In fact, a well thought-out and considered sustainability policy is the basis for long-term returns.”
Outlook
The Schroders study also surveyed expectations of returns. These have risen over the past year, with a view to the period after the pandemic. For example, 82% of investors expect to achieve an annual return of at least 4% over the next five years. A year ago, 72% of investors thought they would achieve that return. In addition, 47% even expect to achieve an average annual return of more than 6%, while this was 35% a year ago. The group of ultra-positive investors expecting an annual return of more than 9% also grew a little: their share rose from 5% in 2020 to 13% in 2021. “The improvement in the global growth outlook is clearly having an effect. At the same time, investors are starting to worry about a reduction in liquidity due to a tightening of monetary policy. This could fuel inflation fears, although ultra-low interest rates are expected to persist,” says Keith Wade, chief economist at Schroders.