Schroders’ Institutional Investor Study 2022 founds that return expectations around the world are being dampened by several factors, while energy transition investment and decarbonisation remain key sustainability themes.
Conducted online with 770 institutional investors, the new study said that there were concerns around the world for the next 12 months arising from Russia’s invasion of Ukraine, rising inflation, and a possible resurgence of the Covid-19 pandemic.
The firm wrote: “At least half of respondents view seven different factors as highly threatening to their portfolio performance in the next 12 months. While the Covid-19 pandemic has fallen sharply as a significant influence, oil prices, global supply chain disruptions, which the pandemic triggered, are prominent, as well as the accelerated attention on climate change risk that will impact both our natural habitat and global economy.”
It said that 78% viewed rising inflation as being of a high level of concern for portfolio performance over the next year. Meanwhile, fears over rising interest rates, geopolitical uncertainty, oil prices, the tapering of monetary policy, climate change, and currency risk were all increasingly ranked as risks.
However, the fears over pandemic had seemingly melted somewhat, dropping from 70% in 2020 to just 26% in the latest study. Fears over a global economic slowdown grew again after dropping from 79% of respondents in 2020 to 58% in 2021. In the latest study, this figure was up at 68%.
Despite all this, confidence levels remain sturdy in all regions apart from Europe. On the continent, 53% were confident in achieving return expectations in 2021, but this had fallen to 48% in 2022.
Elsewhere, the authors wrote: “ESG integration remains the most preferred approach to implementing sustainability, having been on a steady growth path for the last three years. It is now adopted by 75% of institutional investors globally. This reflects that ESG integration is core to their investment process even as they add other approaches. However, this year impact investing (investing with the objective of achieving environmental and social benefits alongside financial return) has seen the greatest increase over the last three years, with 48% of investors highlighting impact as their preferred method, up from 34% in 2020.”
Schroders reported that nearly six out of 10 (59%) investors said new investment opportunities to address the energy transition would further encourage investors to hedge their money sustainably.
It added: “This focus was particularly strong in the UK and Asia Pacific where 68% and 62% of investors, respectively, highlighted the need for more transition-oriented solutions. The need for more quantitative evidence around the financial considerations of investing sustainably is also important (60%); especially for investors in North America.”
According to Schroders, the research was carried out via an extensive global survey during March 2022. The 770 institutional respondents were spilt as follows: 205 North America, 300 in Europe (including UK and South Africa), 215 in Asia Pacific (including Israel) and 50 in Latin America. Respondents are from 28 different locations.