Do ESG investment approaches generate alpha?

A global survey with hundreds of investors suggests many are still unconvinced about a link between alpha generation and incorporating ESG metrics in an investment approach

Nearly two thirds of global investors are unsure that the adoption of a sustainable investment approach results in alpha generation, a survey has revealed.

Results from RBC Global Asset Management’s 2018 Responsible Investing Survey found that 42% of investors are uncertain about a link between the incorporation of ESG metrics and alpha generation, while a further 20% said they believed there is no link whatsoever.

The survey by RBC Global Asset Management (which includes BlueBay Asset Management) was conducted with 542 institutional asset owners and investment consultants in the United States, Canada, Europe and Asia.

Despite those who are still unconvinced about the alpha-generating potential of a sustainable investment approach, 38% said that they believed that integrating ESG factors into an investment approach does assist in generating alpha.

Judy Cotte, vice president and head of Corporate Governance and Responsible Investment at RBC Global Asset Management, said that the large percentage of believers was encouraging.

“Importantly, many institutional asset owners now believe they have a duty to consider a responsible investing approach,” she said in a statement.

“This ongoing shift has significant implications for how large institutional asset pools are allocated, as well as the advice and service provided by consultants and asset managers.”

The survey also found that there has been continued growth in demand for ESG strategies from the institutional market, with 90% of investors saying that they believe ESG integrated portfolios are likely to perform “as well” or “better” than non-ESG integrated portfolios.

Habib Subjally, head of Global Equities at RBC Global Asset Management UK, said that, as the demand continues to grow, fund firms and consultants will be expected to offer guidance as to the available options.

He added: “As industry acceptance of ESG integration has accelerated and become mainstream, there will be greater focus on ESG-related investment research and its application in the portfolio management process.”