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RBC Study Highlights Market Inefficiencies, and Opportunities, Driven by ESG Factors

November 16, 2016

Yesterday, RBC Global Asset Management published it 2016 Responsible Investing Survey Survey and it has some very interesting findings. Its overarching message is that "even as capital pours into ESG investing, data and understanding in this area remains incomplete and opaque - and that's the good news for investors seeking competitive market returns".

 

In general the survey highlighted that there remains uncertainty about the ability of ESG-related factors to drive alpha generation in portfolio's, with only 30% believing it does.  It also highlighted that about 40% of respondents, still do not think of ESG as a risk mitigator.   And therein lies the opportunity for investors. 

 

However, it also highlights that there is a frustration growing with the lack of corporate ESG disclosures.  It showed that 43% percent of respondents indicated some level of dissatisfaction regarding the amount and quality of ESG-related information made available by companies, which may contribute to their belief that ESG investing is not a source of alpha.

 

A couple of surprises as well. The survey highlighted that 62% of respondents believe the Fossil Fuel Free movement is a lasting investment theme.  In particular, given Canada's exposure to this sector, this is a particularly  important theme to monitor, for Canadian investors and companies alike.

 

In addition, and seemingly contradictory to the above, there also seems to be a significant shift in investing style, with the view being that remaining an investor and using that position to engage with companies is more impactful that divesting completely.   This indicates a shift away from negative screening, which may indicate that we are advancing in the mainstreaming of ESG factors into the investment analysis.  

 

In summary, the respondents appear to be highlighting that insufficient research and lack of clarity about ESG's ability to generate returns remain stumbling blocks for ESG integration.  However, it also indicates that there is inefficiency in this market and those who choose to commit to analyzing and systematically integrating  ESG factors into their investment process, may have a unique investment opportunity for competitive returns ... at least until the market catches up.

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