Environmental, social, and governance investments have gained momentum, but what exactly is driving ESG adoption?

Natixis Investment Managers recently conducted a study on Environmental, Social, and Governance investing, surveying thousands of professional investors globally, including institutional investors, fund selectors, and financial advisors about the issues that drive their decisions on ESG investing, according to a press release.

“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,” Harald Walkate, Head of ESG for Natixis Investment Managers, said in a note. “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.”

About 77% of professional fund selectors and 75% of institutional investors considered ESG factors an integral part of sound investing.

Around 51% more institutional investors and 45% more fund selectors engaged in active ownership of ESG investments in 2020, compared to 2019, while 35% of institutional investors pointed to the influence on corporate behavior as a major reason why they have adopted these investments.

Participants believed that ESG criteria may point to improved long-term returns. About 53% institutional investors agreed that companies with better ESG track records generate better investment returns.

While a lack of consensus on ESG measurement has been a challenge for investors, 79% of institutional investors believed it has gotten easier to benchmark performances.

Investors have indicated that they want their advisors to offer investments that match their personal values, but just 29% of financial advisors indicated that their clients have asked for ESG strategies.

“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, in a note. “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.”

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