Institutional investors’ approaches to responsible investing

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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