More than half (54 per cent) of institutional investors expect to use impact investing over the next two years, research from BNP Paribas has found. This marks a ten per cent increase from current levels.
This figure comes from the company’s ESG Global Survey, which discusses the sustainability progress of institutional investors. The results of the survey will be published in three reports over the year, focusing on ESG data and reporting, net zero objectives and the integration of ESG expertise in operations respectively.
Data quality remains a prominent issue in the industry, with the number of respondents citing incomplete and inconsistent data as a significant barrier to ESG adoption rising to 71 per cent — a 17 per cent increase from 2021 figures.
As a result, 65 per cent of those polled consider multiple data sources and 37 per cent conduct their own research methodologies.
Biodiversity data is particularly lacking, the report finds, with two thirds of institutional investors believing that they need to take biodiversity loss and other environmental goals into account when considering ESG. Biodiversity is also the area in which financial materiality is least considered by investors.
Reaching net zero goals is an increasingly important agenda item, with more than 40 per cent of participants stating that commitment to this is a priority in their organisation and almost half expecting them to be prioritised within the next two years. By contrast, in 2021 only 18 per cent of investors reported net zero commitments and just a third reported that they were considering a commitment.
One reason for increased engagement in this space is regulation, with 60 per cent assessing the financial materiality of ESG reputation. A similar figure has done the same for reputational risks.
Investor engagement will be on the ESG agenda, the report predicts, with 45 per cent expecting active ownership to be a key objective over the next two years. More than three quarters believe that climate change and decarbonisation will be prioritised by investors, increasing engagement, voting and potentially investment changes.
With investor interest on the rise, ESG data and expertise is being integrated into portfolio management and investment decisions by more than half of respondents' organisations. This data and expertise has also been integrated into risk management and the monitoring of ESG compliance rules by 42 and 27 per cent of participants respectively.
Commenting on the findings, Sophie Devillers, head of sustainable finance for securities services, says: “Our latest survey demonstrates that, since 2017, institutional investors have been transitioning from asking ‘why’ integrate ESG, to focusing on the ‘how’ of implementation.
“They are now increasingly tackling the challenges of using ESG data, achieving their net zero objectives, and integrating ESG expertise into their operations. The next two years will be critical for them to practically implement their ESG strategies.”
Delphine Queniart, head of sustainable finance client engagement for global markets, adds: “This survey shows that sustainable finance is rapidly maturing as investors look to mobilise across all different regions of the globe.
“We are seeing illuminating examples of investors finding ways to cope with limited data quality, working with others and leveraging new data-management techniques to effectively implement sustainability into the business. As this trend continues, investors will be better able to take advantage of developing opportunities and use their influence to move capital towards investments seeking measurable impacts.”
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