Sustainable investment has improved its profile among asset owners and managers, indicating that further pressure to adapt to climate change is on the way for corporate boards.
Researchers spoke to 650 institutional investors around the world and reported that the proportion who “do not believe in” sustainable investment has fallen significantly over the past 12 months, from 18% in 2018 to just 11% this year.
While that may be good news for policymakers and campaigners concerned that investors put more pressure on companies to operate sustainably, the research from asset management firm Schroders also found that almost one in five investors globally (19%) do not place assets in sustainable investment funds. And this despite the avalanche of announcements from asset managers unveiling sustainability funds in recent times.
However, according to Jessica Ground, global head of stewardship at Schroders, the research shows that “even the most sceptical” of investment institutions now recognise the value of sustainable investment. She also said the trend was now global and no longer tied to specific regions. Further growth in sustainable investment can also be expected.
“The study emphasises that this only going to grow over the next five years with the likes of climate change now viewed by investors globally as the most important issue for stewardship engagement,” she said.
Among engagement topics, respondents revealed that climate change had become the most important (now rated the most important by 54% of respondents), eclipsing corporate strategy (53%) for the first time. This may be recognition that climate change has become a core part of strategy and for many companies will lead discussion on strategic direction.
An overwhelming number of investors believe sustainability to “play a greater role” over the next five years.
However, more European respondents—84%—were certain of this than in Asia Pacific, where the figure was 67%. That would concur with observations that market players in Far Eastern markets are still adjusting their thinking to the sustainability and climate change debate.
If investors are to continue the trend they will need better information and data, according to the survey. Globally, 76% of investors said sustainability investing was “challenging”, highlighting issues with a “lack of transparency reported data”.
There has been growing pressure on companies around the world to adopt the G20’s Task Force on Climate-related Financial Disclosures (TCFD) guidelines on reporting climate-related risk.
During a recent summit in Tokyo, Bank of England governor Mark Carney warned that companies that failed to adjust to a net-zero carbon emissions world would “cease to exist”.
He also warned that the financial system was not moving fast enough to integrate the climate crisis into investment decisions.
“Like virtually everything else in response to climate change, the development of a more sustainable financial system is not moving fast enough for the world to reach net zero.
“To bring climate risks and resilience into the heart of financial decision-making, climate disclosure must become comprehensive, climate risk management must be transformed, and investing for a two-degree world must go mainstream,” he said.
Meanwhile, a review of FTSE 100 annual reports found that just one in five companies mentioned the TCFD and only four “provided fulsome TCFD disclosures within their annual report”.
Just nine companies included climate change “within discussion of their strategy”. Only two of those “explained how their strategy is resilient to climate change”, though 57% of companies “explicitly referred” to climate change.
According to Veronica Poole, head of corporate reporting at advisory firm Deloitte, which was behind the review: “Businesses are facing increased scrutiny of their impact on people and the planet.
“The expectation of business is changing, and the licence to operate can no longer be taken for granted.”