- The number of professional investors implementing ESG grew by 18% since 2018, primarily to better align private capital with investor and organizational values
- Three-quarters of professional investors consider ESG factors to be an integral part of sound investing
- Natixis surveys show a 51% increase in institutional investors exercising active ownership influence over corporate behavior
The pace of growth accelerated in 2020, amid record inflows into ESG funds and an unprecedented number of ESG product launches.2 This year, 68% of professional fund selectors plan to further expand their firm’s ESG offerings. Their primary reason for doing so is because of investor demand, which fund selectors believe stems from investors’ heightened social awareness (75%) and the fact that ESG investing has now reached critical mass among mainstream investors (50%). Other factors they say are driving demand for ESG include investors’ desire to be part of a greener economy (42%) and concerns about climate change (36%).
“The rapid global adoption of ESG has raised questions about whether the momentum building around ESG will continue or if it’s building toward a bubble,” said Harald Walkate, Head of ESG for Natixis Investment Managers. “The answer lies in greater clarity about what investors ultimately want to achieve, not only to deploy ESG strategies that align with their values but also to set realistic expectations for both financial results and societal impact.”
Natixis analyzed previously unpublished findings from a series of global surveys of institutional investors, professional fund selectors and financial advisors about how they are implementing ESG. When viewed through the lens of Natixis’ most recently published survey of individual investors, key questions emerge about ESG investing and whether professional investors, individual investors and their advisors are on the same page.
Stronger Narrative of Financial Performance
Natixis found that 77% of professional fund selectors and 75% of institutional investors now consider ESG factors an integral part of sound investing. Financial advisors concur. Five years from now, nearly six in 10 (59%) financial advisors expect ESG investing to be standard practice across the industry.
Though a lack of consensus on ESG measurement has been a challenge for investors, 83% of fund selectors and 79% of institutional investors say it’s gotten easier to benchmark performance. As better ESG data has become available and reporting is standardized, Natixis sees a stronger narrative emerging on the financial merits of ESG investing.
- More than half of professional investors surveyed by Natixis, including 53% of institutional investors and 55% of fund selectors, now agree that companies with better ESG track records generate better investment returns.
- Seven in 10 fund selectors and 62% of institutional investors think alpha can be found by incorporating ESG factors into investment analysis. More than six in 10 (63%) advisors also agree that ESG strategies may offer potential to outperform the markets.
Multiple Paths to ESG: Matching Motives with Methods
Institutional investors’ top motivation for implementing ESG is to ensure assets better represent organizational values, which has been their top motivation since 2017. Aligning assets and values also is a top motivation for fund selectors, second only to client demand.
Three-quarters of individual investors (77%) previously surveyed by Natixis say it’s important that their investments and values are aligned. Moreover, what investors say they want most out of a relationship with a professional advisor is to have them identify investments that match their personal values. What they mean by that, exactly, is important for financial firms to understand as they expand their ESG offerings and tailor their strategies to best meet clients’ goals – both financial and nonfinancial.
“For advisors, it’s not always clear what clients mean by personal values or whether ESG investors are primarily motivated by a desire to make a better world or better financial returns, or both,” said Dave Goodsell, Executive Director, Natixis Center for Investor Insight. “Ultimately, more concrete evidence of financial and nonfinancial results is needed, but questions and conversations about clients’ motives could go a long way toward helping advisors tailor the best ESG strategies to meet their clients’ objectives.”
Natixis’s research found no single consensus approach to ESG investing. Rather, firms are employing multiple approaches, with distinct risk-return features, that allow them to tailor strategies and address different financial and nonfinancial objectives.
The survey shows the approaches professional investors are taking include:
- Integration: The most widely used approach, taken by 54% of fund selectors and 48% of institutional investors, is to integrate ESG factor analysis into the overall investment process, accounting for issues that with potential to materially affect company performance.
- Negative screening: Four in 10 fund selectors (42%) and institutional investors (40%) rely on negative screening. The exclusion of companies or industries deemed as unethical or harmful, an approach taken by early adopters of socially responsible investing in the 1970’s, fell out of favor with many investors for lack of compelling evidence that it produced either a financial or societal benefit. The number of fund selectors employing negative screening declined by 15% from 2019 to 2020.
- Active ownership: More than one-third of professional investors, including 35% of fund selectors and 34% of institutional investors, are addressing ESG issues by exercising their ownership rights and voice to effect change, an increase by 45% and 51%, respectively, in 2020 from 2019. Meanwhile, 35% of institutional investors say one of the primary reasons they implement ESG strategies is to influence corporate behavior.
- Impact investing: 42% of fund selectors, but just 34% of institutional investors, are engaged in impact investing, with an intent to generate and measure social and environmental benefits alongside financial returns.
- Thematic investing: 43% of fund selectors and 28% of institutional investors focus on thematic investing, which seeks opportunities in emerging trends such as those driven by demographic shifts, innovation and social or policy priorities.
Natixis Investment Managers surveyed 3,600 professional investors globally, including 500 institutional investors, 400 fund selectors and 2,700 financial professionals, about the issues that drive their decisions on ESG investing. Data were gathered in 2020 by the research firm CoreData, with supporting data points from prior-year surveys, including 9,100 individual investors from around the world who were surveyed in 2018 and 2019 about aligning investments with their personal values.
To view the full report, “ESG Investing: Everyone’s on the bandwagon,” including the methodology related to each survey conducted, a download of the report is available here: www.im.natixis.com/us/research/esg-investing-survey-insights-report
About the Natixis Investment Institute
The Natixis Investment Institute applies Active Thinking® to critical issues shaping the investment landscape. A global effort, the Institute combines expertise in the areas of investor sentiment, macroeconomics, and portfolio construction within Natixis Investment Managers, along with the unique perspectives of our affiliated investment managers and experts outside the greater Natixis organization. Our goal is to fuel a more substantive discussion of issues with a 360° view of markets and insightful analysis of investment trends.
About Natixis Investment Managers
Natixis Investment Managers serves financial professionals with more insightful ways to construct portfolios. Powered by the expertise of more than 20 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 firms3 with nearly $1,389.7 billion assets under management4 (€1,135.5 billion).
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; DNCA Investments;5 Dorval Asset Management; Flexstone Partners; Gateway Investment Advisers; H2O Asset Management; Harris Associates; Investors Mutual Limited; Loomis, Sayles & Company; Mirova; MV Credit; Naxicap Partners; Ossiam; Ostrum Asset Management; Seeyond; Seventure Partners; Thematics Asset Management; Vauban Infrastructure Partners; Vaughan Nelson Investment Management; Vega Investment Managers;6 and WCM Investment Management. Additionally, investment solutions are offered through Natixis Investment Managers Solutions, and Natixis Advisors offers other investment services through its AIA and MPA division. 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 U.S. registered investment companies for which advisory services are provided by affiliated firms of Natixis Investment Managers, Natixis Investment Managers S.A. (Luxembourg), Natixis Investment Managers International (France), and their affiliated distribution and service entities in Europe and Asia.
2 © 2021 Morningstar, Inc. Global Sustainable Fund Flows: Q4 2020 in Review. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; (3) does not constitute investment advice offered by Morningstar; and (4) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Use of information from Morningstar does not necessarily constitute agreement by Morningstar, Inc. of any investment philosophy or strategy presented in this publication. Reproduced with permission.
3 Cerulli Quantitative Update: Global Markets 2020 ranked Natixis Investment Managers as the 17th largest asset manager in the world based on assets under management as of December 31, 2019.
4 Assets under management (“AUM”) as of December 31, 2020 is $1,389.7 billion. 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.
5 A brand of DNCA Finance.
6 A wholly-owned subsidiary of Natixis Wealth Management.