White Paper
Current Institutional Investor Appetite for ESG
Despite slowing growth from political pressure and regulatory scrutiny, institutional investors’ adoption of ESG still gaining ground
Summary
Despite the obstacles they encounter, institutional investors are committed to incorporating environmental, social, and governance (ESG) investing into their investment decisionmaking processes. Active ownership is emerging as an appealing option for investors, even if institutional investors traditionally have favored ESG integration. As stakeholder demands for transparency and regulatory requirements rise to the forefront, asset owners’ expectations of managers’ ESG capabilities—including shareholder resolutions, collaborative engagement, and proxy voting—become more intense. Lastly, because offsetting the effects of climate change and preserving biodiversity continue to be among the most popular ESG topics investors seek to address, industry groups, third-party data providers, and other industry initiatives are stepping up their efforts to minimize the effects of climate change.
Key Points
Turning to Active Ownership
Cerulli’s ESG survey of institutional investors finds that while the most common approach for considering ESG factors still is ESG integration, used by 68% of institutions, asset owners are turning to active ownership. Nearly half of institutions (46%) engage in active ownership activities and another 33% plan to in the next 24 months.
Engaging with Management Teams
Of those institutions participating in active ownership, more than two thirds (69%) are engaging with the management teams of underlying portfolio companies on ESG-related issues, and an additional 20% plan to expand their efforts through a range of methods: shareholder resolutions(31%), collaborative engagement (30%), and proxy voting (25%).
Net-Zero Commitment
While just 14% of asset owners have a formal net-zero commitment, another 25% plan to make one in the next 12 months. Additionally, nearly 30% of institutions are investing in strategies that support the transition to a carbonneutral economy, and another 36% plan to do so over the next 12 months. Lastly, half of institutions are either divesting (29%) or plan to divest (21%) from fossil fuels.
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