Schroders Institutional Investor Study 2018 found that 27% of European investors found investing in sustainable investments very challenging, and 51% somewhat challenging. A further 22% did not find it challenging.
The European investors were on par with Asian investors (28% very challenging and 49% somewhat challenging) and both were the investors that perceived it the most difficult.
Overall, across Northern American, European, Latin American, and Asian investors, 21% found it very challenging, 56% somewhat challenging, and 23% not challenging.
The report also found that institutional investors were not convinced that sustainable investments could generate satisfactory returns and that performance was the main challenge.
The Europeans (53%) and North Americans (56%) had performance concerns as their biggest concern when it came to sustainable investments.
Factors to boost sustainable allocations
Lack of transparency was the next biggest challenge with 50% of European investors citing this, followed by difficulty measuring and managing risk at 33%.
A further 30% of European investors said data and evidence showing that investing sustainably delivered better returns could boost sustainable allocations.
This was followed by 27% that said greater transparency by companies on both financial and non-financial performance reporting and better environment, social, and governance (ESG) benchmarks at 14%.
Expectations v reality
The survey found that three-quarters of the 650 institutional investors across Europe, North America, Asia, and Latin America believed that sustainability would be important over the next five years.
However, only half had increased their allocation to sustainable investments.
“This suggests that at present, anticipation of the role of sustainability outweighs real investment,” Schroders said.
“The discrepancy between expected importance and investment could be driven by a number of challenges institutional investors still face when considering sustainable investments.”
Overall, only a quarter said sustainability had a significant influence on their investment decision-making, 41% saying it had a moderate influence, and 32% said it had little to no influence.
When it came to European investors, 60% said they had increased their sustainable investments over the last five years, 26% said it was unchanged, 4% decreased their allocations, and 11% did not invest in sustainable investment funds.
Role of sustainability in decision making
Across the respondents, only 27% said that sustainability focus of an investment was a significant influence on their investment decision making. This was compared to strategic asset allocation which 64% said had a significant influence on their decision making, followed by fund manager track record at 62%.