Institutional Investors Focus Capital on Global Problems: Natixis

Survey respondents said their main reason for integrating ESG was to align their portfolios with their firm's values, but they also saw a strong investment case for sustainable investing strategies. Sixty-five percent maintained that ESG analysis had a valid place alongside fundamental analysis, and 54% said there was alpha to be found in ESG.

Seventy percent said they expected ESG investing to become a standard practice across the industry within the next five years.

At the same time, institutions said they were looking for more robust data to measure ESG's performance.

More than three-quarters of institutions said they were invested in sustainable infrastructure projects, many of which have the potential to generate social, economic and environmental benefits alongside financial returns.

However, although 32% said they wanted to increase their allocations to infrastructure, 34% worried about the associated risks, particularly in emerging and frontier markets. Thirty-one percent were also concerned about the lack of clear measurement standards.

Risks notwithstanding, the Natixis survey found a trend toward private investments among institutional investors, with some seven in 10 saying private assets would be more prominent in their investment strategies going forward.

Three in five investors said their main reasons for investing in private assets were for diversification and because the return/yields on private assets were more attractive than traditional markets.

Seventy-one percent said the returns of private assets made them worth the liquidity risk, and 63% said their potential performance made them worth the higher fees.

"Impact investing has vast promise and the possibility for win-win arrangements on a massive scale, but these types of initiatives often present risks that are prohibitive for institutional investors," Dave Goodsell, executive director of Natixis' Center for Investor Insight, said in the statement.

"Platforms such as blended finance have the potential to make investing in socially beneficial projects more realistic for institutional teams, and free up capital to improve living conditions around the globe."

Successfully investing in private assets and alternatives demands particular skills and experience. Natixis said that that was likely the reason why three-quarters of institutional teams reported that they outsourced at least some investment management functions in order to access specialized expertise.

Thirty-six percent said they outsourced to help them look for strategies tailored to their risk-return profile, and 32% said they did so for new sources of diversification and yield.