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Aug 14, 2018

ESG investing more popular in Europe than US, survey finds

Future client demand cited as a reason for ESG focus

ESG investing is more popular in Europe than in the US, a new survey finds, even though 75 percent of US respondents saying they have incorporated ESG information in their investment decisions. In comparison, 84 percent of European respondents incorporated ESG information into their portfolio construction.

Among the chief reasons cited by those that use ESG principles, 63 percent believe that using ESG information is material to investment performance.

Comparisons between US and European investment managers were similar in terms of client-related reasons for incorporating ESG factors, such as current or future client demand, but European managers come out ahead when it comes to more 'virtuous' goals. Of the respondents, 41 percent say they use ESG principles because it is the ethical thing to do, while only 19 percent of US managers respond take that stance.

The study, published in the Financial Analysts Journal, analyzes how ESG factors are used by a broad sample of the investment management industry.

Engaging owners is the most popular ESG investment style, with 37 percent responding that it is their primary effort. However, European managers, at 48 percent, are more likely to engage than US managers, at 27 percent. Full ESG integration into the stock evaluation process was the most prevalent approach by US managers.

Overall, negative screening – removing low-score ESG companies from the stock opportunity set – was more prevalent (30 percent) than the more involved process of positive screening (13 percent), which requires deeper analysis and engagement. Despite this disparity, when asked about the future of the ESG investment process, respondents believe positive screening will be the most important ESG investment style moving forward.

Issues surrounding consistent and reliable data surfaced throughout the survey. Of the 18 percent that say they did not incorporate ESG, one fifth cite the lack of access to material non-financial data as a reason for not incorporating it into their investment process.

The cost of gathering and analyzing data is also a major obstacle to ESG investing.