RESPONSIBLE investing (RI) is making the transition from niche to mainstream in the asset management industry and is rapidly gaining in importance across the globe.
Yet the Investor Sentiment: Responsible Investing survey, commissioned by NN Investment Partners (NN IP), found that more than half (52%) of investors still believe that an approach that incorporates environmental, social and governance (ESG) factors into investment decisions will cost them returns.
NN IP, however, is convinced that responsible investing can actually help improve investment returns.
The survey also revealed interesting differences between the countries that took part in the survey. German (80%), Italian (75%) and Dutch (71%) investors appear to be the most pessimistic about the return potential of RI strategies, while French (26%) and Belgian (27%) investors are far less negative about responsible investing requiring them to compromise on financial returns.
Professional investors are, in fact, willing to sacrifice returns – on average 2.4% each year if it means their investments have a positive ESG impact, while one in 10 said they would forgo as much as 4.1% to 5% a year.
Jeroen Bos, head of Specialized Equities & Responsible Investing at NN Investment Partners says: "While it is great to see that investors are prepared to give up a proportion of their returns to contribute to a more sustainable world, research actually shows that ESG integration does not automatically lead to lower returns.”
“For example, a metastudy incorporating the conclusions from around 2,200 academic studies conducted between the early 1970s and 2014 revealed a positive relationship between corporate ESG scores and financial performance in the majority of cases (63%). Claims that you must surrender returns to engage in RI are therefore flawed,” he adds.
“To further investigate this theme, we have set up our own academic collaborations with Yale University in the US that focusses on how taking material and forward-looking ESG criteria into account in investment decisions can help enhance risk-adjusted performance. Furthermore, previous research we did with the University of Maastricht (ECCE) shows that integration of ESG factors such as momentum and focus on behavioural aspects in this area can improve risk-return of investment portfolios,” he continues.
In practice, this is also illustrated by the strong performance of both our Global Sustainable & European Sustainable Equity strategies. Put simply, RI can certainly go hand in hand with excellent risk-adjusted investment returns,” he says.