A whole new era of responsible investment?
BOSTON, March 29, 2017 /BusinessWire/ — A global survey of both institutional and retail investors sponsored by State Street Corporation (NYSE: STT) found that traditional obstacles to environmental, social and governance (ESG) investing are fading, while one significant barrier remains: the lack of transparent, standardized and quality data.
The findings from State Street’s Center for Applied Research (CAR), co-authored by Professor Robert Eccles, visiting professor at the Said Business School of Oxford University, will inform an expansion of ESG solutions across the organization, including the impending introduction of a suite of ESG analytics tools and enhanced asset safekeeping using data-driven insights.
These capabilities will add to existing ESG investment strategies State Street Global Advisors (SSGA) has been managing for more than 30 years, including positive and negative screens as well as multi-asset strategies. SSGA also works with large institutional investors to integrate ESG signals into their active investment strategies, and engages with companies through its asset stewardship program to promote long-term, sustainable returns.
The Investing Enlightenment: How Principle and Pragmatism Can Create Sustainable Value through ESG found that nearly all (92 percent) institutional investors surveyed want companies to explicitly identify ESG factors that materially affect performance, while 60 percent note a lack of industry standards for measuring ESG performance as a significant barrier to full integration. Forty-six percent of retail investors want to see more companies reporting ESG performance-related data and 46 percent say they need more ESG data from other sources to make educated decisions.
“We have entered into a new era of investing characterized by leveraging capital markets for a better society,” said Lou Maiuri, executive vice president and head of State Street Global Exchange and Global Markets businesses. “The promise of this new type of investing, ESG, is grounded in data transparency and engagement. Having a custodian for data has become just as critical as having a custodian for financial assets when trying to deliver long-term value for investors in today’s market.”
“Over the long-term, environmental, social and corporate governance issues can have a material impact on a company’s ability to generate returns,” said Ron O’Hanley, president and chief executive officer at State Street Global Advisors. “Investors, especially those with a fiduciary role, must consider what the world looks like today, tomorrow and beyond. At State Street Global Advisors, our mission is to invest responsibly on behalf of our clients to enable sustainability, economic prosperity and social progress over the long term. A focus on ESG issues is a critical requirement for us to deliver against the mission.”
While data and a lack of transparency continue to pose hurdles to ESG investing, the CAR study found that many of the traditional barriers to ESG integration are receding:
- Only 35% of institutional investors believe ESG equals lower returns
- Just 10% of survey respondents say they view fiduciary duty as a barrier to ESG integration
- Nearly three quarters of investors (74%) see three-plus years as a realistic timeframe to gain outperformance from ESG investments
To help investors move more easily from ESG aspiration to integration, State Street offers a mix of investable products from low carbon and gender diversity ETFs to multi-factor risk analytics capabilities like ESG exposure reporting. Based on its research study, the company has also developed a model to help investors successfully integrate ESG investing into their investment strategies. This new model is based on five actions:
- Ensure there is decisive support from the organizations’ c-suite and board on ESG issues; Individual investors should align portfolio decisions to what they believe is important.
- Provide training on ESG across the investment organization, particularly sector portfolio managers, financial advisors and analysts.
Ask to get the data and solutions you need:
- In addition to asking companies for data, support industry efforts for increased standardization of ESG data and reporting requirements, and enable meaningful conversation between financial advisors and individual investors.
Incorporate a materiality filter:
- Investment decisions should be based on the material ESG issues.
Align time horizons:
- Adjust performance metrics and incentives structure to reflect the longer-term nature of ESG investing.
“We’ve seen significant progress in investors’ understanding of ESG over recent years but believe further progress can be made to move more investors from ESG awareness to full integration,” continued Maiuri. “We hope this study will contribute to greater ESG adoption and understanding.”
About State Street
State Street Corporation (NYSE: STT) is one of the world’s leading providers of financial services to institutional investors, including investment servicing, investment management and investment research and trading. With $29 trillion in assets under custody and administration and $2 trillion* in assets under management as of December 31, 2016, State Street operates in more than 100 geographic markets worldwide, including the US, Canada, Europe, the Middle East and Asia. For more information, visit State Street’s website.