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May 19, 2020 at 04:33 PM
Ninety-six percent of institutional investors in a survey released Tuesday by Natixis Investment Managers said their organizations had an important role to play in addressing global challenges, such as climate change, social and economic inequality and the need for infrastructure development.
Six in ten said they would be likelier to invest in projects that helped provide solutions to societal challenges if those projects presented a risk/return profile in line with their portfolios’ long-term goals.
Natixis noted that balancing short-term risks and long-term objectives was a familiar conundrum for institutional investors. Since the 2008 financial crisis, strict liquidity requirements have limited institutions’ investment options while ultra-low interest rates over the past decade have pushed their future obligations higher.
Add to that the Federal Reserve’s actions in March to stabilize the financial market by reducing rates almost to zero after the coronavirus pandemic was declared a national emergency.
In the survey, which was completed before the onset of the pandemic, 57% of institutional investors said solvency and liquidity requirements created a bias for short time horizons and highly liquid assets.
Forty-eight percent said the market’s focus on short-term performance expectations inhibited their ability to execute long-term strategies, and 31% reported internal pressure from their own boards’ focus on quarterly results.
“Institutional investors must now find ways to meet their mandates in a world that’s even more yield starved while facing unprecedented social, political, financial and environmental threats,” David Giunta, chief executive for the U.S. at Natixis Investment Managers, said in a statement.
“We’re seeing institutions draw on a wider variety of assets and resources now more than ever to achieve their long-term objectives.”
CoreData conducted the survey in October and November among 500 global managers of corporate and public pension funds, foundations, endowments, insurance funds and sovereign wealth funds, including 129 based in North America.
Embracing ESG
According to the survey, 48% of investors said institutions should put capital to work to address environmental, social and governance issues. Similar percentages said they should champion corporate governance, including enhanced diversity and inclusion policies and practices, and use their clout to influence the policies and actions of their portfolio companies.
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.
