More large-scale investors are skittish about an ESG strategy at the expense of returns: survey

Some institutional investors remain increasingly unconvinced that responsible investing will boost their returns.

That is according to the Royal Bank of Canada Global Asset Management's fourth annual survey on responsible investing, which found that 18% of institutional investors globally said an environmental, social and governance strategy will perform worse, up from 10% last year. Another 24% of investors said they were unsure if ESG could help them avoid risk in their portfolios, marking an increase from 18%.

Still, the vast majority of institutional investors have welcomed ESG as a boon for financial performance as a growing body of research shows that companies focused on sustainability have seen their financial performance improve, said Melanie Adams, head of corporate governance and responsible investing at RBC GAM, in an interview.

"This demonstrates that there is more opportunity for research and education in this area," she said.

Adams said the decline of investor confidence partly stems from regional differences. More European and Canadian investors said they believed ESG could reduce risk and boost returns, while the U.S. and Asia trended downward.

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The results come as institutions have widely adopted sustainable investing, despite much slower adoption among everyday investors. In the U.S, professionally managed assets invested sustainably rose to $11.9 trillion in of 2018, up from $8.7 trillion in 2016, according to the Global Sustainable Investment Alliance.

On the other hand, a lot less money has gone into U.S. funds that reference ESG, signaling that retail investors haven't caught on. These funds held just $161 billion of the U.S.'s $22.1 trillion in assets at the end of 2018, according to Morningstar, a market intelligence firm.

To help push ESG investing, RBC works to ensure their wealth managers and financial advisors at other firms are educated so clients are aware about the funds they can invest in, Adams said.

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