Legal Considerations in Responsible Investment

Investment Professionals Increasingly Focused on ESG Factors

At the close of 2018, the marketing firm Edelman released its second annual Special Report: Institutional Investors, a supplement to The Edelman Trust Barometer, which measures global trust in business, government, media and NGOs. The report surveyed more than 500 chief investment officers, portfolio managers and buy-side analysts across five countries to capture insights and observe trends from some of the world’s most powerful institutional investors. Responses showed that in addition to financial metrics, investors increasingly incorporate ESG (Environmental, Social, and Governance) factors into their strategies.

Collectively, the firms whose representatives responded to the survey manage more than $4.5 trillion in assets, using various investment styles. Yet ninety-three percent of respondents stated that their firms believe long-term value hinges on both financial performance and ESG features. Most went so far as to say their firms would consider investing with a lower rate of return if the investment included sustainable or impact investing considerations.

Globally, more than half of the respondents said that in the last year their firms had undertaken changes in order to be more attentive to ESG risks. Eighty-nine percent of respondents said their firm has changed its voting and/or engagement policy as a result.

In addition to highlighting the importance of environmental factors, the report touched on the value of addressing various social issues to ensure the global business environment remains healthy and robust. Ninety-eight percent of investors agreed that public companies are urgently obligated to address one or more societal issues. The top five issues were Cybersecurity, Income Inequality, Workplace Diversity, National Security, and Immigration.

Finally, as to governance, Edelman survey respondents said corporate culture and conduct matter to them. Globally, ninety-five percent of respondents said the health of a company’s culture, such as enforcing a corporate code of conduct at all levels of a company, impacts the level of trust they have in a company in which they are considering investing. Sixty-five percent went so far as to say it had a great deal of impact.

The statistics presented in this report emphasize the growing global importance of ESG with investors and asset managers who are increasingly valuing environmental and social practices as much as governance and returns.

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