Natixis Report Finds Strong Tailwind for ESG Investing, but Lack of Standards Is Hampering Investor Adoption Rate

  • Three-quarters of individual investors want their investments to align
    with their personal values.
  • More than half (56%) of institutional investors believe there is alpha
    to be found in ESG analysis, but lack of track records and difficulty
    measuring performance are cited as key challenges.
  • Roughly half of investors say they don’t have the information needed
    to support ESG investment decisions, yet just 15% of advisors think
    they need to get better at explaining ESG to clients.
  • Studies call for greater education, clear communication of goals and
    broadly accepted standards for measuring and reporting ESG results.

BOSTON–(BUSINESS WIRE)–More than half (56%) of investors globally, including 61% in the US,
believe companies that demonstrate higher integrity will outperform,
according to a new report on Environmental, Social and Governance (ESG)
investment issues released today by Natixis Investment Managers. The
finding is important since Natixis also learned that half of investors
globally aren’t willing to sacrifice returns to achieve sustainability
goals.


“Today’s investors expect the best of both worlds – investments that
generate positive performance and also support the values and causes
that matter to them – and those two worlds are increasingly merging,”
said Harald Walkate, Head of Corporate Social Responsibility and ESG for
Natixis Investment Managers. “Driven by a genuine convergence of goals,
the future of ESG investing is gaining positive attention and popularity
across intermediaries. The task now is to further refine the investment
processes, develop well-defined metrics and continue to improve
transparency.”

The study is based on surveys Natixis conducted globally with 12,375
financial professionals, individual investors, and institutional
investors about the views and issues that drive their decisions on ESG
investing. Natixis found that the potential to support personal values
while meeting portfolio objectives may be a critical reason why demand
for ESG strategies is strong among investors. But the findings also
reveal investors’ need for clarity on how ESG is implemented – and why.

According to the survey:

  • Six in ten (60%) investors globally say they already actively invest
    with the purpose of making a positive social or environmental impact.
    A substantially larger number – 76%, including 71% in the US – say it
    is important to them to be able to invest according to their personal
    values.
  • More than half (56%) of investors globally say they actively avoid
    investing in companies that go against their personal values. However,
    doubts about whether they have enough information about ESG mean that
    fewer than half (47%) of investors globally believe their investments
    can have a positive impact on the world.
  • Half (56%) of institutional investors believe there is alpha1 to be
    found in ESG, but lack of track records and difficulty measuring
    performance are cited as main challenges.

Investors know what ESG factors matter to them, but lack tools to
measure them

When assessing the “E”, the “S” and the “G” in “ESG,” investors have
definite views on what concerns them most. The three main issues for
investors globally are pollution (the “E”) cited by 52%, human rights
(the “S”) cited by 54%, and bribery and corruption (the “G”) cited by
60%. US investors differ only slightly in their priorities: Human rights
(59%) is the most-often cited issue, followed by corruption (57%) and
pollution (52%).

Climate change, often touted as a top concern for investors, trails as a
priority at 45% globally and 41% in the US. However, nearly three in
four investors, 73% globally and 71% in the US, say they would purchase
a fund if it demonstrated a better carbon footprint, a key goal for
climate change.

In terms of monitoring the ESG exposures within their portfolios,
investors globally say they would take specific actions to align their
investments with their values. For example, 44% of investors globally
say they would sell stocks in their portfolio involved with weapons
manufacturing, tobacco and gambling. One-third (35%) would sell their
shares of companies that emit a higher level of pollution than their
peers. Finally, 25% would sell shares of companies that lack diversity
and/or gender equality in top management positions.

US investors are following their global counterparts in some areas (just
34% would sell stocks involved with weapons manufacturing, tobacco and
gambling and 21% would sell shares of companies that lack diversity) but
are exceeding them in others (38% would sell shares in companies that
emit pollutants).

Despite positive perceptions and growing demand for investments that
reflect their values, Natixis found that investors are not blindly
accepting when it comes to ESG investments: Many want more information
to support their ESG investment decisions. Only 47% of investors
globally, and 50% of those in the US, say they have the information they
need to make socially responsible investment decisions.

Partly as a result of uncertainties about whether they have enough
information about ESG investments, many investors are unsure of how – or
whether – they can influence change through their investment decisions.
Fewer than half of investors globally believe their investments can have
a positive impact on the world, including 44% of US investors. However,
Millennials have a more optimistic view, with 56% believing their
investments can be a tool for positive change.

Financial advisors may be missing an opportunity

For financial advisors, closing the information gap could be a
significant step to enhancing long-term client relationships. Nine in
ten (88%) advisors globally say that the key to their success is their
ability to demonstrate value above and beyond asset allocation. Being
more attuned to client values could be a clear point of distinction for
advisors, and ESG investments are an important way for them to
differentiate themselves. But Natixis found the conversation that’s
happening today could be clearer.

Despite the large number of investors who think it is important to align
their investments with their values, only 25% of advisors globally, and
28% in the US, believe clients have asked more for ESG investments in
the last 12 months. Advisors may be slow to recognize an important
investment trend: With investor interest increasing, just 15% of
advisors globally, and 17% in the US, think they need to improve their
ability to understand and explain ESG to their clients.

While they may feel comfortable with their understanding of ESG, many
advisors in the US actually have a limited view of what ESG investing
means. When asked to define ESG, a third (33%) say it means negative
screening, 20% describe it as incorporating companies’ ESG
decision-making into the investment process, 19% impact investing and
19% thematic investing. In order to properly advise their clients,
financial intermediaries themselves need a better, clearer understanding
of ESG. That said, 62% of US advisors currently say they are more likely
to recommend ESG products to their clients if there is better data and
reporting on these investments.

Institutional investors are positive about ESG, but see challenges to
adoption

While institutional investors say that aligning organizational values
with investments is the most common reason they incorporate ESG factors
into their decision-making, values are not the only driver. One in five
(20%) institutional investors say that they use ESG investing to
generate higher risk-adjusted returns over the long term. Nearly as many
(18%) say they already have enjoyed enhanced returns as a result of
incorporating ESG into their investing, and 40% are satisfied with their
ESG strategy’s investment performance. Almost a quarter (23%) already
have benefited from increased diversification as a result of ESG. Even
more importantly: More than half (56%) believe ESG can mitigate risk
going forward, such as loss of assets due to lawsuits, social discord or
environmental harm.

The best indicators of ESG’s growing acceptance among institutional
investors: More than half (55%) expect to increase their ESG allocation
this year, and 65% think ESG will become an industry standard within the
next five years.

Although more than half of institutional investors believe there is
alpha to be found in ESG, 43% said the lack of well-established track
records and difficulty measuring performance are challenges they face.
These investors also express concerns about false or exaggerated
commitment to ESG-friendly policies – so-called “greenwashing” (40%) and
the lack of transparency (37%) in the investing process. Because of
this, 36% worry that short-term performance goals and long-term
sustainability goals could be in conflict.

“Investors have made clear their interest in ESG strategies: Now, the
industry has to prove it can deliver across the board – on both values
and performance,” said Dave Goodsell, Executive Director of Natixis
Investment Managers’ Center for Investor Insight. “Institutional
investors, financial advisors and asset managers will need to work
together in a concentrated effort to ensure greater acceptance of ESG
investing.”

Study points to ways to shape long-term acceptance of ESG

Natixis found that closing the information gap on what ESG is and how it
can be used in investment decision-making is essential to increasing ESG
adoption. Based on the study’s findings, there are three steps the
financial industry can take:

1) Educate investors to better align their assets with their personal
values:
More education is needed to help investors understand how
they can align investment decisions with their values. Not only will
financial advisors need to actively listen for how investors voice their
preferences and what they want to accomplish with their money, but they
also need to engage in better education and training on the specific
strategies that help clients realize their goals – be it values
alignment, better risk management, influencing corporate behavior or
addressing pressing societal issues.

2) Make ESG part of the investment performance discussion: One of
the key questions for investors is whether the investments they choose
to support their values are actually delivering on that objective. Asset
managers who promote ESG investments have a responsibility to report not
only on their investment performance but also on how well their funds
have actually delivered on advancing ESG goals.

3) Provide clearer definitions of what is meant by ESG: It starts
by establishing consistent terminology on ESG. But it also means
establishing clear standards and uniform reporting for identifying and
measuring the strategies that will help investors achieve specific goals.

To download a copy of the full report, titled “Looking for the Best of
Both Worlds,” visit im.natixis.com/us/research/esg-investing-report-2019.

Methodology

Natixis Investment Managers surveyed 9,100 individual investors in 23
countries and regions including Asia, EMEA, Latin America, and North
America, 2,775 financial professionals in 16 countries and territories
in Asia, Continental Europe, Latin America, the United Kingdom and North
America, and 500 institutional investors in North America, Latin
America, the United Kingdom, Continental Europe, Asia and the Middle
East. In the US, Natixis surveyed 750 individual investors and 300
financial advisors. Data for the three surveys were gathered in 2018 by
the research firm CoreData.

About the Natixis Center for Investor Insight

The Center for Investor Insight is dedicated to the analysis and
reporting of issues and trends important to investors, financial
professionals, money managers, employers, governments and policymakers
globally. The Center and its team of independent and affiliated
researchers track major developments across the markets, economy, and
investing spectrum to understand the attitudes and perceptions
influencing the decisions of individual investors, financial
professionals, and institutional decision makers. The Center’s annual
research program began in 2010, and now offers insights into the
perceptions and motivations of over 70,000 investors from 31 countries
around the globe.

About Natixis Investment Managers

Natixis Investment Managers serves financial professionals with more
insightful ways to construct portfolios. Powered by the expertise of 24
specialized investment managers globally, we apply Active Thinking®
to deliver proactive solutions that help clients pursue better outcomes
in all markets. Natixis Investment Managers ranks among the world’s
largest asset management firms5 with $960.3 billion / €855.4
billion AUM.6

Headquartered in Paris and Boston, Natixis Investment Managers is a
subsidiary of Natixis. Listed on the Paris Stock Exchange, Natixis is a
subsidiary of BPCE, the second-largest banking group in France. Natixis
Investment Managers’ affiliated investment management firms include AEW;
Alliance Entreprendre; AlphaSimplex Group; Darius Capital Partners; DNCA
Investments;7 Dorval Asset Management; Flexstone Partners;
Gateway Investment Advisers; H2O Asset Management; Harris Associates;
Investors Mutual Limited; Loomis, Sayles & Company; McDonnell Investment
Management;8 Mirova; MV Credit; Naxicap Partners; Ossiam;
Ostrum Asset Management; Seeyond; Seventure Partners; Thematics Asset
Management; Vaughan Nelson Investment Management; Vega Investment
Managers;9 and WCM Investment Management. Investment
solutions are also offered through Natixis Advisors and Dynamic
Solutions. Not all offerings available in all jurisdictions. For
additional information, please visit Natixis Investment Managers’
website at im.natixis.com
| LinkedIn: linkedin.com/company/natixis-investment-managers.

Natixis Investment Managers’ distribution and service groups include
Natixis Distribution, L.P., a limited purpose broker-dealer and the
distributor of various registered investment companies for which
advisory services are provided by affiliated firms of Natixis Investment
Managers, and Natixis Investment Managers S.A. (Luxembourg) and its
affiliated distribution entities in Europe and Asia.

1 A measure of the difference between a portfolio’s actual
returns and its expected performance, given its level of systematic
market risk. A positive alpha indicates outperformance and negative
alpha indicates underperformance relative to the portfolio’s level of
systematic risk.

2 Natixis Investment Managers, Global Survey of Financial
Professionals conducted by CoreData Research in March 2018. Survey
included 2,775 financial professionals in 16 countries.

3 Natixis Investment Managers, Global Survey of Individual
Investors conducted by CoreData Research, September 2018. Survey
included 9,100 investors 25 in countries.

4 Natixis Investment Managers, Global Survey of Institutional
Investors conducted by CoreData Research in September and October 2018.
Survey included 500 institutional investors in 28 countries.

5 Cerulli Quantitative Update: Global Markets 2018 ranked
Natixis Investment Managers as the 16th largest asset manager in the
world based on assets under management as of December 31, 2017.

6 Net asset value as of March 31, 2019. Assets under
management (“AUM”), as reported, may include notional assets, assets
serviced, gross assets, assets of minority-owned affiliated entities and
other types of non-regulatory AUM managed or serviced by firms
affiliated with Natixis Investment Managers.

7 A brand of DNCA Finance.

8 Natixis Investment Managers, L.P. transferred ownership of
McDonnell Investment Management, LLC to Loomis, Sayles & Company, Inc.
on January 1, 2019.

9 A wholly-owned subsidiary of Natixis Wealth Management.

Risks

All investing involves risk, including the risk of loss. Sustainable
investing focuses on investments in companies that relate to certain
sustainable development themes and demonstrate adherence to
environmental, social and governance (ESG) practices; therefore the
universe of investments may be limited and investors may not be able to
take advantage of the same opportunities or market trends as investors
that do not use such criteria. This could have a negative impact on an
investor’s overall performance depending on whether such investments are
in or out of favor.

Contacts

Maggie McCuen
Natixis Investment Managers
Tel: 617-449-2543
Maggie.McCuen@Natixis.com

error: Content is protected !!