This week, two separate survey results have been released on the matter on investor sentiment on ESG concerns, which seem to be entirely contradictory. One survey stated that the majority of institutional investors couldn’t give a fig for ESG concerns when making their investments, while the other said that ESG was a top concern for institutional investors that will increase over the next three years.
A survey of nearly 900 UK-based investors by City broker HYCM, with the results exclusively reported by UK newspaper City A.M, found that less than a third of British investors say COP26 and the UK government’s stance on climate change had accelerated their ESG investment plans to pump capital into sustainable assets. And that even fewer, just 19%, considered ESG investments to be a savvy financial strategy at present. The recent energy crisis has made 38% of UK investors wary of making sustainable, green, or ESG investments – this figure rose to 58% for those with investment portfolios in excess of £500,000..
“Investors are in no rush to hop on the ESG bandwagon, potentially due to concerns surrounding greenwashing or the performance of sustainable investments,” said Giles Coghlan, HYCM’s chief currency analyst told City A.M. “At the moment, investors remain broadly sceptical about ESG, and a least in the short-term, all bets are off that we will see any immediate investor activity off the back of the COP26 summit.”
However, a third of respondents indicator that they do plan to invest, or increase their investment, in green energy, such as wind power, water stocks and solar energy in the next 12 months. Coghlan added: “It is important not to make any sweeping statements about the ESG landscape: younger investors and those with larger portfolios are comparatively optimistic about prospects for green investment and are considering this as a keen focus in their strategies.”
A second report based on research quant technologies provider SigTech, found that 62% of pension funds and other institutional investors expect to increase their focus on ESG over the next three years. Some 14% said they expect their focus to increase ‘dramatically’ between now and 2024, with just 7% claiming it will decrease.
Climate change issues are foremost concern for investors, with 43% of the institutional investors surveyed noting that environmental factors is the most important of the ESG issue. Nearly one in three (31%) said social factors are, and 26% selected governance as their main focus area. The professional investors surveyed are based in North America, Europe and Asia and who collectively have around $935 billion of assets under management.
Admittedly, these surveys were conducted in different jurisdictions but it does demonstrate the varying perspectives of investors on ESG issues. This is also playing out in the aviation sector. There are very prominent investors that are pushing ESG issues and following that through into their investment decisions, but many more are asking those ESG questions but not basing any investment decisions on the answers. The sector is awash with liquidity at the moment thanks to the Fed pumping in more money than needed to prop up the economy in the grip of the pandemic, and low interest rates means investors are looking for the best yielding transactions to put that money to work. You only have to look at the rebound in the aviation ABS market to realise the extent of that investor demand for aviation assets. ESG concerns are real, however, and are here to stay and will become more of an investment focus in the coming years but today, the main message seems to be that ESG issues are not putting the brakes on investing in aviation. Even so, this is a long-term industry, and only the most naïve would be foolish not to consider the impact of ESG regulation and investors sentiment over the longer-term future, both on future fundraising activities and residual values.