ESG Study: How Institutional Investors Embrace Responsible Investing

Responsible investing has gathered enough momentum in recent years to reach the mainstream. What is less clear is how far along global institutional investors are in the process of integrating environmental, social and governance (ESG) principles into their investment decisions. To find out, Franklin Templeton commissioned a comprehensive study across 21 markets, to see the extent of how responsible investing is incorporated into investment decisions. We highlight four themes to track the way asset owners are adopting responsible investing and ESG considerations over time.

From Principles to Best Practices

Responsible investing frameworks such as socially responsible investing, positive screening, impact and thematic investing, and the integration of ESG principles have been applied to professionally managed assets in various forms for several decades. At Franklin Templeton, we have long been committed to responsible investing and the application of ESG criteria in our investment processes.

Yet, we recognize institutional investors are at different stages of their ESG journey. So we commissioned a study to better understand how advanced they are in the process of integrating the principles of ESG into their investment decisions. Our study included a range of respondents—from investors just beginning to adopt an ESG framework to asset owners who have developed an organizational-level set of polices with ESG framework applied across portfolios. Our research found four themes to track the way asset owners are adopting responsible investing and ESG considerations over time.

Theme #1: Traction

As ESG considerations gain acceptance, there is broad consensus among study respondents on the benefits in regard to potential risk reduction, but differences of opinion regarding the impact on potential returns.

We discovered that developing expertise in ESG is a top priority for institutional investors, ahead of core categories such as investment strategy and technology. Our survey indicated that 80% of asset owners were allocating more resources to improve their ESG knowledge and 73% were expanding capabilities in this area.

These research findings reflect both ESG’s growing importance and the under-developed internal capabilities of many investors. As commitment rises, a rapid growth in ESG resourcing and dedicated teams often results, thus creating an increased appetite for research and data.