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Covid-19 Economy Impact

Trending: Investors interested in ESG and sustainable investments

ESG&SustainableInvestment
CFA research study examines how the COVID-19 pandemic has focused investors on the interconnectedness of the financial system and intensified discussions on sustainability investments

  • 94% of UAE retail investors were interested in or using ESG in 2020, up from 90% in 2018

United Arab Emirates: CFA Institute, the global association of investment professionals, has released a new global research study that examines the state of sustainable investing and how this trend – accelerated by the COVID-19 pandemic – will shape the investment industry over the next decade.

Among the findings, 85 percent of CFA Institute members surveyed now say that they take E, S and/or G factors into account when investing, up from 73 percent just three years ago. This growth has been driven by client demand, with 69 percent of retail investors and 76 percent of institutional investors having interest in ESG investing.

The survey revealed that 74 percent of UAE investors with a values objective would be willing to give up some return in exchange for meeting their investment goals, and 94 percent of retail investors in the UAE were interested in or using ESG in 2020, up from 90 percent in 2018.

The report, “The Future of Sustainability in Investment Management: From Ideas to Reality”, explores the influences driving the sustainability trend and sets out implications for investment firms, including the need to better integrate sustainability data and to develop sustainability expertise to meet client expectations with innovative products.

Although the future of sustainable investing includes many unknowns, the report advances three important tenets where sustainable investing goes further than its forerunners:

  • It is additive to investment theory and does not mean a rejection of foundational concepts.
  • It develops deeper insights about how value will be created going forward using environmental, social, and governance (ESG) considerations.
  • It considers many stakeholders.

In addition to these findings, the report focuses on four key areas of sustainable investing:

  1. The rise of alternative data and its importance in sustainability analysis:  Technology is a necessary foundation for competitive advantage in ESG analysis, with more data sources becoming available and more differentiation among data.
  2. Increased demand for sustainable investing expertise: There is a relative scarcity of sustainability talent in the investment industry. CFA Institute used LinkedIn
  3. Investor demand is driving firms to change their investment models and expand product offerings: Among the various ways to incorporate ESG into the investment process, ESG integration and best-in-class approaches are more popular than negative or exclusionary screening, highlighting the evolution of ESG techniques, enabled by improvements in data.
  4. The relevance of systems thinking in sustainability analysis: The COVID-19 pandemic has emphasized the urgency of sustainability issues, highlighted the interconnectedness of the financial system, and how corporate value creation both affects, and is affected by, the ecosystem in which it operates. The integration of sustainability issues will require a more widespread application of system-level thinking.

“The demand for sustainable investing continues unabated, driven by push and pull factors, catalyzed by societal expectations, and accelerated by the Covid-19 pandemic.” said Rhodri Preece, CFA, Senior Head of Industry Research for CFA Institute. “Investment firms that incorporate sustainability into their business models need access to specialist knowledge to enrich their investment capabilities and to bridge the data gaps. Education and training in the ESG space, along with the rise of alternative data sources and enhanced disclosure frameworks, will equip firms to deliver on the potential of sustainable investing.”

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