Hermes: Only 48% Of Investors Believe ESG Focus Improves Long-Term Returns

Oct 31 2017 | 10:49pm ET

Less than half of institutional managers surveyed as part of Hermes Investment Management’s annual Responsible Capitalism study believe companies that focus on environmental, social and governance (ESG) issues produce better long-term returns. 

This year’s figure of 48% represents a dramatic drop in confidence from 56% in the 2016 survey, despite some 86% of the 104 investors polled also believing fund managers should price in corporate governance risks as a core part of their investment analysis. 

The data suggests many investors continue to cling to the persistent myth that to meet ESG criteria, something must be sacrificed, Hermes said. “It’s clear from this year’s Responsible Capitalism survey [that] many institutional investors still view ESG as a tick-box exercise to keep risk managers happy, rather than part and parcel of building a better future for retirees,” noted Saker Nusseibeh, CEO of Hermes Investment Management, in a statement. 

Other highlights of the study, named Responsible Investing & the Persistent Myth of Investor Sacrifice.

  • In spite of the fiduciary duty of pension funds to maximize retirement incomes for beneficiaries, 33% of respondents do not believe significant ESG risks with financial implications justify rejecting an otherwise attractive investment.
  • 57% of pension funds believe the number of investment opportunities rejected on ESG grounds will increase. This should give those who believe that ESG criteria can stand independent from financial returns pause for thought, Nusseibeh added.
  • When asked whether pension funds should focus on maximizing retirement incomes or on whether their investments would improve or detract from the overall quality of life experienced by beneficiaries when they retire, only 49% of respondents said they should focus on the latter.

“We need to forge a better alignment with the people we serve and think about the society we are building. There is no point striving for a wealthy retirement if society has been destroyed by the ill-considered actions of companies who have been insufficiently held to account by their shareholders,” Nusseibeh concluded.

Headquartered in London, Hermes manages £30.1 billion on behalf of more than 330 clients across equities, fixed income, alternatives and real estate strategies. The company is a signatory to the UNPRI. 

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