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State Street : Asset Owners Say Integration of ESG has Significantly Improved Returns, State Street Global Advisors Study Shows

by April 19, 2017 General

80 Percent of Asset Owners Now Have an ESG Component in Their
Investment Strategies

State Street Global Advisors (SSGA), the asset management business of
State Street Corporation (NYSE: STT), today announced the results of a
global survey of 475 institutions1, which found that 68
percent of respondents say the integration of an environmental, social
and governance (ESG) strategy has significantly improved returns,
showing that the adoption of ESG driven investment strategies has a
future in institutional portfolios.

The survey also found that 77 percent of respondents said they invested
in ESG strategies because such factors play a role in a public company’s
broader financial performance. While this growing integration of ESG
strategies is a good sign, active ownership remains a critical part of
the comprehensive strategy, as findings show that 78 percent of asset
owners have some level of ESG engagement with the companies in which
they invest taking ESG investment beyond negative screening.

“There’s a collective shift in the institutional investment world right
now that has asset owners and managers thinking differently about the
full implications of their investments,” said Chris McKnett, head of
global ESG business at SSGA. “For the majority, the question is no
longer, ‘should we consider ESG as part of our mandate,’ the question is
‘how are we actively pursuing opportunities with our investments that
help us reach our financial goals, while encouraging change in the

Expectedly, all investment approaches face some type of challenges.
Nearly two-thirds of respondents (57 percent) say it’s difficult to
benchmark performance against peers. Fifty-six percent said the accurate
assessment of external ESG asset managers was a key issue. Nearly half
(49 percent) of asset owners say that fees and expenses are the main
barriers to further incorporating ESG into portfolios, followed by a
lack of internal knowledge on the matter.

“In the last four or five years, we’ve seen a marked increase in the
level of awareness and interest in ESG at the institutional level, which
is extraordinarily promising,” said Rakhi Kumar, head of ESG Investments
and Asset Stewardship at SSGA. “There’s a broader appreciation of the
notion that good governance translates into better management of areas
such as a company’s carbon footprint, as well as how management engages
with the workforce. The companies that operate this way, we believe, are
better quality investments that yield better performance long term.”

Other Key Findings:

  • Comparing ESG Appetites by Region – 40% of investors in Europe
    and 38% of investors in the US have 25–49% of their investments with
    ESG allocations. In Asia-Pacific, half of investors have less than 25%
    of investments with ESG allocations
  • A large majority of respondents (69%) say that pursuing an ESG
    strategy has helped with managing volatility.
  • Despite many surveyed investors expressing satisfaction with the
    performance benefits of their ESG strategies, overall ESG exposure
    remains low — on average only a third of adopters’ investments
    incorporate ESG criteria. Our results suggest that investors expect
    that proportion to grow over the next two years — to around 40% of
    their portfolio.
  • 84% of respondents are satisfied or very satisfied with the financial
    performance of their ESG strategy.

The full survey report can be viewed here.

About the survey

State Street Global Advisors surveyed 475 asset owners in the UK,
France, Germany, Italy, Switzerland, Nordic countries, the Netherlands,
Korea, Singapore, Japan, China, Hong Kong, Australia and the US.
Respondents included public and private pension funds, endowments,
foundations, family offices, sovereign wealth funds, central banks and
supranationals. The survey was conducted in December 2016 and January

About State Street Global Advisors

For nearly four decades, State Street Global Advisors has been committed
to helping financial professionals and those who rely on them achieve
their investment objectives. We partner with institutions and financial
professionals to help them reach their goals through a rigorous,
research-driven process spanning both active and index disciplines. We
take pride in working closely with our clients to develop precise
investment strategies, including our pioneering family of SPDR ETFs.
With trillions* in assets under management, our scale and global
footprint provide industry leading access to markets and asset classes,
and allow us to deliver expert insights and investment solutions.

State Street Global Advisors is the investment management arm of State
Street Corporation.

*Assets under management were $2.47 trillion as of December 31, 2016.
AUM reflects approx. $30.62 billion (as of December 31, 2016) with
respect to which State Street Global Markets, LLC (SSGM) serves as
marketing agent; SSGM and State Street Global Advisors are affiliated.

State Street Global Advisors
One Lincoln Street
MA 02111 – 2900


Exp: 4/30/2018

1 4/15/2017: Survey respondents include private and public
pension funds, endowments, foundations and official institutions.