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Lou Maiuri, State Street

Investors find sustainable value through ESG, says State Street

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Traditional obstacles to environmental, social and governance (ESG) investing are fading, while one significant barrier remains – a lack of transparent, standardised and quality data, according to a global survey of institutional and retail investors sponsored by State Street Corporation.

The Investing Enlightenment: How Principle and Pragmatism Can Create Sustainable Value through ESG found that nearly all (92 per cent) institutional investors surveyed want companies to explicitly identify ESG factors that materially affect performance.
 
A further 60 per cent noted a lack of industry standards for measuring ESG performance as a significant barrier to full integration.
 
The corresponding findings for institutional investors based in the EMEA region were 92 per cent and 58 per cent respectively.
 
The study also found that 46 per cent of retail investors globally want to see more companies reporting ESG performance-related data (this was 48 per cent for retail investors based in EMEA) and 46 per cent say they need more ESG data from other sources to make educated decisions (41 per cent in EMEA).
 
“We have entered into a new era of investing characterised by leveraging capital markets for a better society,” says Lou Maiuri (pictured), executive vice president and head of State Street Global Exchange and Global Markets businesses. “The promise of this new type of investing, ESG, is grounded in data transparency and engagement. Having a custodian for data has become just as critical as having a custodian for financial assets when trying to deliver long-term value for investors in today’s market.”
 
“Over the long-term, environmental, social and corporate governance issues can have a material impact on a company’s ability to generate returns," says Ron O’Hanley, president and chief executive officer at State Street Global Advisors. “Investors, especially those with a fiduciary role, must consider what the world looks like today, tomorrow and beyond. At State Street Global Advisors, our mission is to invest responsibly on behalf of our clients to enable sustainability, economic prosperity and social progress over the long term. A focus on ESG issues is a critical requirement for us to deliver against the mission.”
 
While data and a lack of transparency continue to pose hurdles to ESG investing, the study found that many of the traditional barriers to ESG integration are receding, with only 35 per cent of institutional investors believing ESG equals lower returns (for the EMEA region, and 31 per cent of institutional investors and 25 per cent of retail investors believe that ESG investment means sacrificing returns).
 
In addition, just 10 per cent of survey respondents say they view fiduciary duty as a barrier to ESG integration. For the EMEA region, only 12 per cent see fiduciary duty as a barrier to ESG integration. In addition, 44 per cent of asset owners and asset managers agree that the concept of fiduciary duty is shifting toward encouraging ESG integration.
 
Nearly three quarters of investors (74 per cent) see three-plus years as a realistic timeframe to gain outperformance from ESG investments (76 per cent of institutional investors in EMEA said they expect outperformance in three years or more)
 
“We’ve seen significant progress in investors’ understanding of ESG over recent years but believe further progress can be made to move more investors from ESG awareness to full integration,” says Maiuri. “We hope this study will contribute to greater ESG adoption and understanding.”
 
The findings from State Street’s Center for Applied Research (CAR), co-authored by Professor Robert Eccles, visiting professor at the Said Business School of Oxford University, will inform an expansion of ESG solutions across the organisation, including the impending introduction of a suite of ESG analytics tools and enhanced asset safekeeping using data-driven insights.

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