Why confidence in ESG returns keeps on growing

New reports P reveal investors are turning to ESG products in search of ‘improved long-term returns’, but hurdles remain as the trend continues its march into the mainstream

The myth that investing in companies with strong environmental credentials means foregoing attractive returns was dealt a dual blow today, after two new reports revealed growing confidence across the investment community that assets boasting impressive environmental, social, and governance (ESG) performance are delivering strong financial returns.

BNP Paribas Securities Services today published the results of a new survey of nearly 350 asset owners and managers, detailing their attitudes towards ESG issues and the maturity of their ESG strategies.

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It found consideration of ESG factors is increasingly embedded within asset owners and managers’ activities, as more firms recognise the attractive returns and improved risk management a strong ESG performance can deliver.

The poll found 75 per cent of asset owners and 62 per cent of asset managers hold more than a quarter of their investments in funds incorporating ESG – a sharp increase on the 48 per cent of owners and 53 per cent of managers who targeted more than a quarter of their investments at ESG products when the survey was last undertaken in 2017.

Significantly, 52 per cent of respondents now rank ‘improved long-term returns’ in their top three reasons for ESG investment, while 60 per cent of all respondents expect their ESG portfolios to outperform the wider market over the next five years.

The survey also revealed a significant number of investors are taking a holistic and wide-ranging approach to ESG engagement. For example, nearly two thirds said their investment framework was now aligned with the UN’s Sustainable Development Goals (SDGs), while nearly a quarter state that ESG capability is embedded across their entire organisation.

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