ESG : What do investors expect?
Véronique Le Sourd , EDHEC-Risk Climate Impact Institute Senior Research Engineer, et Lionel Martellini, Professeur et EDHEC-Risk Institute former CEO, traitent dans un article initialement publié sur The Conversation des résultats de l'enquête sur l’utilisation des ETFs.
Depuis 2006, l’EDHEC–Risk Institute réalise annuellement une enquête en Europe portant notamment sur l’utilisation des ETFs, les fonds qui reproduisent l’évolution d’un indice boursier et qui se négocient en bourse comme un titre ordinaire.
Since 2006, the EDHEC Risk Institute has conducted an annual study in Europe into
the use of Exchange Traded Funds (ETFs), the funds that track a stock market index or asset and can be traded on the stock market like ordinary shares.
The 13th edition of this study, published at the end of September, presented an opportunity to look into the integration of ESG (Environment, Social policy, Governance) criteria into this type of investment.
The respondents revealed a great interest in the subject: 95% of them responded to
the questions directly related to ESG even though there was no obligation to reply to
them.
The study was carried out in the first trimester of 2020, among professional investors,
reputedly highly experienced in these types of instruments and strategies (institutional investors, asset management companies, wealth managers), via an on-line questionnaire. There were 191 participant responses across 29 European countries, with a high representation among European Union members (comprising 65% of respondents).
These participants occupy high-level positions in their organisations (49% were in
executive management positions and 29% were portfolio managers) managing significant assets, with 34% of them representing firms managing more than 10 billion euros worth of assets.
A positive impact on society
Respondents indicated two main reasons for integrating an ESG component in their
investments. For 65% of them, it would have a positive impact on society, and for
58%, it would reduce risk exposure in the long term. Only 25% do it with the aim of
improving the performance of their investment. However, we note that 63% of
respondents declared that they were not ready to accept a reduction in performance
in exchange for a better ESG score.
Most respondents (57%) said that the E (Environment) element is the most important of the ESGs; G (for Governance) came in second (36% or respondents), and S (for Social issues) came last, with only 7% respondents considering this the most important dimension of ESG (see the figure opposite). This order corresponds with the interest currently being shown in problems of climate change.
In practice, 45% of participants indicate that they prefer the best-in-class approach, that is, to choose the shares with the best ESG score in their category. Thirty per cent choose a thematic approach, and only 25% engage in negative screening, meaning that they eliminate entirely certain sectors of activity.
Over the years, the successive reports have shown a broad adoption by ETFs of investment in the main share classes. In 2020, 92% said that they use ETFs to invest in assets, and 97% were satisfied, a situation that has been quite stable for a decade or so. ETF investment in ESG has developed more recently.
Investors demand more ESG
In 2011, only 17 % of respondents invested in ESG, compared with one in two respondents (49%) in 2020. Among those, 55% used ETFs to invest in ESG in 2020, while they were only 22% in 2011 and 33% in 2019 (see the figure below). When we aggregate the results, we see that more than one quarter (27%) of those who use ETFs today use ETFs engaged in ESG investment, compared with only 4% in 2011.
In 2020, 54% of investors saw themselves continuing to develop their use of ETFs,
although the rate of adoption of this type of investment in already high.
The two greatest demands for new products are for ETFs that invest in ESG (43%)
and ETFs investing in low carbon-footprint assets (31%); 50% of respondents hope
to develop at least one of these two products.
The results thus suggest an interest among investors for ESG criteria. Investors also demand better integration of ESG criteria in other investment vehicles such as smart beta strategies, which track indices of more sophisticated construction methods than the indexes on which tradition EFTs rely, and also in multi-factor strategies.
The respondents also hoped that more customised solutions will be developed. Researchers and suppliers of solutions should pursue the integration of an ESG component into their products, in order to encourage their broader adoption by investors.
This article was co-published with The Conversation France under the Creative Commons
licence. Read the original article.
Image par rawpixel.com sur Freepik
