Responsible investing rapidly becoming critical to institutional investors, according to new Aon survey

Toronto (October 2, 2019) – Aon plc, a leading global professional services firm providing a broad range of risk, retirement and health solutions, today released the results of its 2019 Global Perspectives on Responsible Investing survey and found an enormous uptick in the importance of responsible investing (RI) from institutional investors across geographies, investor types and firm sizes.
 
According to Aon’s survey of nearly 230 investment professionals globally, 85 percent report responsible investing is at least somewhat important to their organization, up from 68 percent in its 2018 survey. This growth occurred across all geographic regions and institutional investor types, which include corporate pensions, public pensions, endowments and foundations, and defined contribution plans. The increase in those that believe RI is at least somewhat important, by region:

• United Kingdom: 87 percent, up from 66 percent in 2018
• United States: 78 percent, up from 57 percent in 2018
• Canada: 78 percent, up from 68 percent in 2018
• Continental Europe: 85 percent, up from 80 percent in 2018

 “I am sure it comes as no surprise that responsible investing is growing in importance in regions like the UK and Continental Europe, where there’s been a marked increase in RI regulation,” said Meredith Jones, author of the report and global head of responsible investing at Aon Hewitt Investment Consulting. “However, we are also seeing significant investor-led RI efforts in areas where regulation is not driving activity. It seems institutional investors are increasingly concerned about risks associated with non-financial factors within their portfolios, and RI offers multiple ways to capture, evaluate and mitigate those risks.”
 
In addition to rapidly increasing interest in RI, the implementation, particularly in geographies with strengthening RI regulatory frameworks, is also expanding at a brisk pace. Globally, 44 percent of the investors polled report an RI policy is already in place, while another 24 percent have an RI policy in development--both increases from 2018’s tallies. One of the hurdles to implementation has historically been the question of how RI might impact returns, but this concern appears to be waning.
 
More than 40 percent of those polled believe that the incorporation of non-financial environmental, social and governance (ESG) data results in better investment performance. One third of those polled believe responsible investing is “nearing a tipping point,” an increase of nearly 10 percentage points from the 2018 survey. In addition, 64 percent of respondents allocated assets to some type of responsible investing strategy, up from 49 percent in 2018. Of those respondents, 59 percent indicated they would maintain or increase their allocations to RI in the coming year.
 
Despite these gains, relatively ambiguous regulatory policies in the United States may be holding investors back from RI. Forty-four percent of those polled in the United States indicated that RI plays no role in their investment decision making, compared with 29 percent in Canada, 27 percent in Continental Europe and 11 percent in the United Kingdom. Globally, the percent of respondents who do not consider RI in the manager selection process dropped from 37 percent to 29 percent.
 
Jones added, “The staggering increase in RI sentiment and activity we witnessed in our 2019 survey makes one thing abundantly clear: responsible investing is officially a going and growing concern. The changing regulatory framework will play a larger role in some investors’ RI endeavors, while others will adopt increasingly “mainstream” ESG integration, and still others will embrace roles as global change agents. Regardless, institutional investors seem to understand that the world will look very different in the coming years and are evolving now to meet the investment challenges that lie ahead.” 
 

Canadian institutional investors are shifting towards RI

In Canada, where the trend towards regulation governing ESG has admittedly been slower than in Europe, growth in interest and implementation is still quite evident. For example, the percentage of Canadian institutional investors who believe that RI is “very important” to their organization jumped five percentage points in this year’s survey, and more investors (19 percent) also reported having dedicated RI staff in 2019 than in the prior year (12.5 percent), said Calum Mackenzie, Partner and Head of Investment in Canada, Aon.
 
“Investment committees have moved ESG up the agenda, and it is increasingly an important part of investment risk considerations for institutions of varying size, background and complexity,” explained Mackenzie. “Having a coherent ESG policy and commitment is becoming just an entry-level requirement for institutional investors, who are growing more sophisticated in their approach to responsible investing. In fact, we are finding that investors are increasingly asking Aon to look under the hood of their strategies to ensure that ESG is truly integrated into their investment process, and not just ‘green washing.’”
 
Key Canadian findings from the 2019 Global Perspectives on Responsible Investing report include:

• Thirty-eight percent of respondents from Canada already have an RI policy.
• Globally, 29 percent of respondents said that the primary motivation for engaging in responsible investing was to impact global issues such as climate change, diversity or social justice, but only eight percent of Canadian investors indicated that global impact was a motivating RI factor.
• In Canada, where the regulatory response has been considerably slower and more tepid than in Europe, only eight percent of respondents indicated regulations were motivating their RI initiatives. Roughly 30 percent of Canadian investors are opting to take a “wait and see” regulatory approach.
• Respondents from Canada were the least likely to have responsible investments of any kind, with 52 percent stating they had no proactive responsible investments in their portfolios.
• Despite gains in overall investor sentiment towards RI in Canada, 29 percent of those polled indicated that RI plays no role in their investment decision-making. Globally, the percentage of respondents who do not consider RI in the manager selection process dropped from 37 percent to 29 percent.

The 2019 Global Perspectives on Responsible Investing report is available here, including additional detail and data about actions by investor type and by geographic region.
 

Methodology

Aon conducted a global survey of Aon clients and institutional investors from early May 2019 through late July 2019. The survey captured the sentiments of 229 investment professionals globally who represented a range of portfolio size from less than USD $500 million to $5 billion. Responses from the survey were analyzed and aggregated to create summary results.