While 50 per cent of U.S.-based institutional investors currently don’t invest sustainably, 52 per cent said they plan to either maintain or increase their allocations to sustainable investment over the next three years, according to a recent survey by SEI Investments Co.
In terms of sustainability issues, investors are most interested in renewable energy (58 per cent), followed by energy efficiency (58 per cent), water (43 per cent), affordable housing (43 per cent), health (40 per cent), green buildings (38 per cent), education (38 per cent), sustainable agriculture (32 per cent), inclusive finance (28 per cent) and sustainable forestry (23 per cent).
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The survey also found more than half (59 per cent) of institutional investors use commingled and mutual funds. Fewer (37 per cent) use separate accounts, overlays (27 per cent) and direct securities (26 per cent). As for asset classes, two-thirds (65 per cent) of survey respondents said they use or plan to use U.S. equities as part of their sustainable investment strategies, followed by international equities (46 per cent). private equity (35 per cent), fixed income (33 per cent), real estate (19 per cent), infrastructure (13 per cent), hedge funds (eight per cent) and high-yield strategies (eight per cent).
The most popular (69 per cent) reason for engaging in sustainable investing was that doing so aligned with the organization’s overall mission. As well, 49 per cent were motivated by social impact, 39 per cent by their organization’s reputation and 36 per cent by financial returns. On the other hand, the reasons not to invest sustainably varied from concerns about performance (60 per cent), the difficulty of evaluating the necessary products and strategies (53 per cent), the difficulty in risk management (32 per cent), the difficulty in benchmarking strategies (30 per cent) and other investments were simply higher priorities (26 per cent).
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Among survey respondents that implement a sustainable investment policy, they do so in various ways. Nearly half (47 per cent) said sustainability is a criteria in investment policy statements, followed by directly investing in companies that align with the investor’s particular impact mission (43 per cent), using negative screening to limit the holdings of certain securities (40 per cent) and using positive screenings to beef up holdings with higher sustainability rankings (38 per cent). Of those that do employ screening, negative and positive screening techniques are equally used.