Sponsors of institutional investment pools in the US expect moderate growth in socially responsible investing (SRI) over the next two years, according to a survey by Mercer's investment consulting business. More strikingly, 75 percent of investors believe that environmental, social, and corporate governance (ESG) factors can be material to investment performance.

The Mercer's investment consulting survey represents the views of 183 US institutional investors responsible for over US$500 billion in assets under management (AUM). Individual funds represented in the survey ranged from less than US$250 million to more than US$5 billion AUM.

The following key trends emerged: 

• Moderate growth in SRI uptake is expected over the next two years with participation by respondents expected to increase from 22 percent to 28 percent.
  
  
• 80 percent of investors that pursue an SRI approach are driven by a desire to align investments with an underlying mission; 61 percent believe pursuing an SRI approach will reduce risk or improve returns. 
  
  
• 75 percent of respondents believe ESG factors can be material to investment performance, but less than half intend to assess explicitly whether these factors are being considered. 
  
  
• Corporate governance is the ESG issue most commonly cited as “very important” by investors, while climate change ranks last on this measure. 
  
  
• Roughly a quarter of respondents plan to step up their proxy voting and shareholder engagement activity over the coming two years. 
  
  
• Approximately half of respondents view the use of minority and female-owned and/or emerging (MFOE) managers as a subset of SRI.

"Corporate governance, the environment, human rights, and other global issues increasingly capture the attention of policy makers, the media, and nongovernmental organizations," reports Jane Ambachtsheer, global head of Mercer's responsible investment business. "Institutional investors are also clearly taking note."

By encouraging improved corporate performance on ESG issues through investment decision making and active ownership practices, institutional investors can positively align their investment activities with the broader objectives of society, while at the same time seeking greater risk-adjusted, long-term financial returns. This new paradigm of responsible investment turns age-old concerns about constrained investment universes and fiduciary duties on their head. Survey findings suggest it is within this new paradigm, and positioned within the framework of fiduciary responsibility, that the greatest level of future activity will take place.

Addressing the evolving nature of responsible investing, the survey questions were organized within four subject areas:

• Traditional practices: socially responsible investment
  
  
• Emerging views: considering new factors (environmental, social and corporate governance) in investment decision making
  
  
• Active ownership and shareholder engagement
  
  
• Use of minority and female-owned and/or emerging (MFOE) managers in SRI

To read the full report, download the PDF above.

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Mercer is a leading global provider of investment consulting services, and offers customized guidance at every stage of the investment decision, risk management and investment monitoring process. We have been dedicated to meeting the needs of clients for more than 30 years, and we work with the fiduciaries of pension funds, foundations, endowments and other investors in some 35 countries. We assist with every aspect of institutional investing (and retail portfolios in some geographies), from strategy, structure and implementation to ongoing portfolio management. We create value through our commitment to thought leadership; world-class, independent research; and top-notch consultants with local expertise.