Is ESG Performance Enhancing?
The old debate continues about whether ‘ethical’ or ‘socially responsible’ investment approaches and techniques are compatible with optimal returns, and whether managers’ and trustees’ primary fiduciary duty is to maximise returns.
End investors have complained that advisers often fail to offer SRI or ESG (Environmental, Social and Governance) solutions – either because they are not incentivised to do so, or because they expect relative underperformance.
But both concerns have been overtaken by a series of research reports and polls indicating that:
1. There is demand for SRI and ESG products and it is Not in fact a breach of fiduciary duty to consider them (in fact, the reverse may be true) and
2. These strategies do not necessarily deliver inferior returns.
Here is the latest such report in Expert Investor Europe, derived from a survey by Last Word Research of 229 fund selectors across the region in June.
It shows that more than two thirds of European fund selectors are willing to suffer one year or more of underperformance in an ESG strategy and 21% were willing to suffer more than two years of underperformance. Sixteen percent said they would tolerate less than six months of underperformance in an ESG strategy. A further 59% considered ESG screening enhanced investment performance, and 50% said they would either increase slightly or considerably their allocation to ESG strategies. Just 3% of those polled said they would reduce allocation.