Institutional Investors More Convinced on Social Investing

Institutional investors are the latest wave of mainstream investors to jump on the social investing bandwagon. After years of hesitancy about including environmental and social performance (SRI) in company evaluations for fiduciary reasons, a new survey shows that 75% of US institutional investors believe SRI factors can affect investment performance.

The survey, conducted by Mercer Investment Consulting represents the views of 183 US institutional investors responsible for over US$500 billion in assets under management. Individual funds represented in the survey ranged from less than US$250 million to more than US$5 billion in assets.

According to the survey, 22% of respondent currently use social/ environmental investing criteria. Over the next two years, that number is expected to rise to 28%. 80% of investors that pursue an SRI approach do it because they want to align investments with their underlying mission, while 61% believe pursuing this approach reduces risk or improves returns.

Corporate governance was most commonly cited as the most important SRI issue for investors – climate change ranked last.

About a quarter of respondents plan to step up their proxy voting and shareholder engagement activity over the coming two years.

“Corporate governance, the environment, human rights, and other global issues increasingly capture the attention of policy makers, the media, and nongovernmental organizations,” reports Jane Ambachtsheer, global head of Responsible Investment at Mercer. “Institutional investors are also clearly taking note.”

By encouraging improved corporate performance on SRI issues through investment decision making and active ownership practices, institutional investors can positively align their investment activities with the broader objectives of society, while at the same time seeking greater risk-adjusted, long-term financial returns. This new paradigm of responsible investment turns age-old concerns about constrained investment universes and fiduciary duties on their head. Survey findings suggest it is within this new paradigm, and positioned within the framework of fiduciary responsibility, that the greatest level of future activity will take place.

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