Investor giants opt for ESG over financial metrics when backing companies

(UK Today News) – Heavyweight investors are placing greater emphasis on environmental, social and governance factors than they were 12 months ago — a sign that pension funds and other large asset owners are showing a preference for ESG over traditional financial metrics when picking companies in which to invest.

According to a survey of 100 UK-based institutional investors by asset manager Federated Hermes, 88% said ESG factors now play a “central role” when making long-term investment decisions.

The vast majority (83%) said companies with strong ESG metrics were likely to outperform competitors that do not have this focus, while 80% think they help produce better long-term results and reduce investment risk.

Almost 80% said companies with ESG failings should be avoided, even if their short-term returns look attractive.
ESG has gained more importance over the past year, with 78% of investors saying social factors like diversity and inclusion policies carry more weight than they did 12 months ago, according to the survey.

The same number said they are also putting more emphasis on environmental factors, such as energy efficiency and managing waste responsibly.

Engagement with companies over their approach to ESG was identified by 85% as the most effective approach.

Saker Nusseibeh, chief executive of the international business of Federated Hermes, said: “As we approach COP26, the need for the investment management industry to play its part in efforts to tackle climate change globally has never been more urgent.

“The results of our survey of major UK institutional investors show that for these investors, an approach anchored in ESG is not a ‘nice to have’ but core to their decision-making process. It backs up our long-held view that, over the long term, ESG factors are financial factors when it comes to investing.”