Rippled nature reflection on pond water surface
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Most institutional investors say that environmental, social and governance (ESG) factors are material to evaluating investments, according to a new survey from National Bank Financial Inc. (NBF).

The firm surveyed about 150 institutional investors — including asset managers (50%), government institutions (16.3%), banks (11.6%) and pensions (8.1%) among others — at the end of 2019. It found that 75% now consider ESG factors to be “material” to their investment analysis.

Only 11.6% said that ESG isn’t a consideration.

Additionally, more than half of the respondents (55%) said that labels, such as “green, social, or sustainable,” impact their analysis of securities.

Despite the high degree of interest in ESG factors, most firms said that they don’t have dedicated ESG portfolios (75.7%).

“Investors are in early stages of fund integration,” National Bank noted.

“Progressive regulatory mandates may drive ESG demand,” it said, adding that 60% of investors anticipate growth in their ESG portfolios for broader sustainable mandates.

Respondents said that research from ESG-focused firms is the most useful external source of information (56.8%), followed by research from investment dealers (44.3%) and issuers themselves (37.5%).

Almost half of investors also said that they conduct their own internal ESG analysis.

The survey noted that, when it comes to dealers, investors would like to see broader research, detailed ESG comparisons and targeted research on project finance.

From issuers, investors would like to see more detailed impact reporting and ESG-focused investor relations material.

The biggest use for ESG research, the survey found, is assessing the value of a security (65.9%).

Determining how much exposure to take ranked a distant second place (31.8%), followed by maintaining an exclusion list, determining the timing of exposure.