Environmental, social and governance (ESG) criteria are an increasingly significant factor for institutional investors considering alternative investment allocations, says LGT Capital Partners.
According to a joint survey by LGT Capital Partners and Mercer titled Global Insights on ESG in Alternative Investing, most investors believe ESG improves risk-adjusted returns and is a key aspect of risk and reputation management.
The survey found that 76 per cent of survey respondents across 22 countries incorporate ESG criteria when investing in alternate asset classes.
LGT Capital Partners managing partner and chairman of the firm’s ESG Committee, Tycho Sneyers, said that it is “encouraging” to see investors factoring ESG criteria into investment decisions.
“Incorporating ESG considerations into investment decisions strengthens a portfolio’s defense against risks arising from governance failures, changes in policy and regulation, and environmental and social trends.
“It can also put investors in a better position to take advantage of opportunities arising from a shift towards more sustainable economic growth,” Mr Sneyers said.
“CIOs, heads of asset classes and portfolio managers of large and small institutions from 22 countries clearly recognise the positive effects of ESG integration on risk-adjusted returns.
“This shows that ESG analysis has moved beyond ethical concerns and has firmly found its place as a risk and investment management topic,” he said.
The survey found that 57 per cent of respondents believe including ESG criteria has a positive impact on risk-adjusted returns.
The survey also found that 54 per cent of institutional investors have only begun incorporating ESG criteria into investment strategies over the past three years or less.
“Given the high rate of recent adoption of ESG and broad interest in the topic, we can safely assume that ESG integration will continue its rapid expansion,” Mr Sneyers stated.
Topics such as carbon intensity, controversial weapons and bribery and corruption were viewed by respondents as issues with the potential to impact a company’s long-term risk, performance and reputation.
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