ESG investment (Environmental and Social Governance) still appears to be a top driver among the rivers of cash catalysing global business.
News from Aeon Investments, the London based credit-focused investment company, is that among pension funds and other institutional investors in Europe and the US, who collectively have around $437 billion in assets under management, some 86 per cent believe there will be more new structured credit issued in 2022 than there was in 2021.
Evidently then, there is plenty of confidence available in today’s business environment. What’s crucial from a sustainability perspective is that the research reveals those issuing the structured credit need to ensure they have a strong focus on ESG, as 80 per cent of pension funds and other institutional investors expect to place a greater focus on this over the next 12 months when selecting investment opportunities.
It appears some 36 per cent of those interviewed anticipate a dramatic increase in ESG factors accounting for rating actions concerning structured credit over the next 12 months, and a further 49 per cent expect a slight increase.
What’s driving the ESG energy?
When asked to pick the most important features when considering whether to subscribe to a new debt issuance from an organisation, 53 percent selected energy efficient in their top three, and this was followed by 46 per cent who cited energy consumption and 44 percent who chose levels of recycling.
It might be possible these percentages, especially on energy, might even be higher now following the high levels of global energy risk following the outbreak of conflict in Ukraine. Certainly, energy security is a big issue and where sustainability can help with that, there’s an added bonus.
Finally, when it comes to investing in structured credit, 34 per cent of professional investors said it is very important that the financial institution offering co-invests in their investment vehicles with the same underlying risk and fee structure, and a further 63 per cent said this is quite important.
Oumar Diallo, Chief Executive Officer, Aeon Investments said: “Even through the worst of the Covid crisis, the structured credit market grew, and our research shows that investors expect the number of issuances to increase further this year, but investors are becoming more demanding in terms of what they expect before they invest, particularly with regard to ESG factors.”
Further evidencing of the key role of ESG
Aeon isn’t alone in its assessment of ESG as pivotal to today’s investment landscape. It appears that half of retail investors are planning to switch some of their investments, including pensions, into ESG investments this year as the focus on ethical investing continues to intensify, new research from behavioural finance experts Oxford Risk has just shown.
Its research found 50 percent of investors intend to move some of their funds including pensions into ESG this year with one in seven (14 percent) planning to move 60 percent or more of their funds.
Oxford Risk’s study found 41 per cent of investors believe the ESG credentials of advisers and wealth managers are important when it comes to the investment advice they offer. Around a quarter (24 percent) however say ESG credentials are unimportant when rating investment advice, a surprising finding.
Bear in mind that these figures are likely to change over the next two years; some 42 per cent questioned believe ESG credentials will become even more important to help wealth managers win business compared with just four per cent who say ESG will become less important.
Greg B Davies, PhD, Head of Behavioural Finance, Oxford Risk said: “ESG investing is building momentum with half of retail investors planning to move at least some money into ESG funds over this year.
“It is clearly good news that retail investors are engaging with their investments and making positive decisions and advisers need to engage as well by focusing on delivering the best possible service for investors.”
Oxford Risk’s ESG suitability framework elicits each investor’s unique ESG preferences to determine how much ESG each investor should be encouraged to have in their portfolio, and how the portfolio should be constructed to meet each investor’s personal preferences for balancing “E”, “S”, and “G”.
It also provides support for ongoing investor engagement using behavioural messages tailored to each investor. Such approaches are becoming more commonplace as ESG becomes the prevalent driver behind global finance and investment.