Impact investing is now viewed among the key pillars of sustainable investing, alongside integration and positive screening, Schroders Institutional Investor Study 2022 has found.

As reported by our sister title, Insurance Asset Management, just under half (48 per cent) of investors said impact investing was their preferred approach to implementing sustainability, a significant increase on 38 per cent a year ago and 34 per cent in 2020. The study also found that the importance of full ESG integration into the investment process had grown as a focus, further cementing it as the most favoured approach among investors.

Growing demand for investment solutions focused on the energy transition was also reflected by the findings. Well over half of investors (59 per cent) said that new investment opportunities addressing the energy transition would encourage them to invest more in sustainable investments. This focus was particularly strong in the UK and Asia Pacific where 68 per cent and 62 per cent of investors respectively highlighted the need for more transition-oriented solutions.

At the same time, performance concerns over investing sustainably have ticked up over the past 12 months, with 53 per cent of investors citing this as a challenge compared with 38 per cent a year ago. This is a significant reversal with worries about performance having consistently fallen year-on-year until now, and likely reflects the more challenging market environment. Specifically, concerns were very high for both Asia Pacific and Latin American investors. A lack of transparency and reported data was also recognised as one of the major obstacles holding investors back from investing sustainably.

Engagement remains a key focus for investors globally with 59% stating that tangible evidence of real-world outcomes was the most important component of any active ownership strategy. Specifically, almost two-thirds of investors (64%) believed governance (e.g. transparency of voting and shareholder resolutions) was the top engagement theme. A focus on human rights and the climate completed the top three in terms of engagement priorities.

Almost four in ten investors globally said they had committed to reaching net-zero by 2050, with European investors leading the field on this point, ahead of those in Latin America, Asia Pacific and North America. One-third of North American investors are still exploring the transition but are not yet committed to specific targets.

Looking at the investment outlook, investors’ return expectations for the next five years have deteriorated compared with a year ago, compounded by significant concerns over the impact of rising inflation and interest rates, as well as geopolitical uncertainty growing and fears over a global slowdown.

Amid a more challenging outlook, the study did however find that investors’ confidence in achieving their returns has remained steady – most likely the result of their scaled-back expectations. Concerns over global pandemics have markedly fallen in importance as an issue for investors compared with the previous two years.

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