In this paper, we aim to understand institutional investors’ approach to responsible investing, which has become an important consideration in many investors’ portfolio management decisions. We conduct in-depth qualitative interviews with more than twenty institutional investors – mostly consisting of pension plans and central banks –, and complement our insights with relevant findings from academic literature.
First, we show that there is a broad diversity in investors’ responsible investment preferences that can be attributed to cultural factors. Regulation also plays a significant role in influencing investors’ attitudes, with Europe leading the way in sustainability regulation. Second, for most investors, long-term financial return and sustainability go together and responsible investing is often a key element of risk management. Third, regarding implementation, we observe a rising interest in sustainability themes, and an awareness from large investors that transition-focused strategies are key in reaching Net zero objectives. Active ownership is also a key feature of institutions’ responsible investment policy and a large majority of investors favor engagement to influence corporate behavior, whose success needs to hinge on a well-formalized process. Divestment strategies are seen as a last-resort instrument, that often stem from beliefs and stakeholder pressure rather than financial considerations. Finally, while ESG data remains a challenge, many investors feel the need to strengthen their resources in the area. These may be organized around a decentralized approach so that responsible investing can better irrigate the whole institution.
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