Investors with a long track record of incorporating ESG into their investment processes are more likely to believe that doing so leads to increased risk-adjusted returns, analysis from LGT Capital Partners has found.

Nearly three quarters (71 per cent) of investors who had incorporated ESG for seven years or more felt it had increased risk-adjusted returns, while 24 per cent said it had no effect and 6 per cent believed it lowered risk-adjusted returns.

By comparison, 48 per cent of those with four to six years of ESG integration said it increased risk-adjusted returns, falling to 33 per cent of those who had integrated ESG for up to three years, and 9 per cent of those who had no ESG integration experience.

Across all surveyed investors, 39 per cent felt it increased risk-adjusted returns, 41 per cent believed it had no effect, and 20 per cent said it had lowered risk-adjusted returns.

LGT Capital Partners’ research also found that investors with more experience in ESG integration believed ESG was more relevant to decision making when appointing alternative investment managers compared to those with less experience.

Overall, a quarter (25 per cent) of investors saw ESG as very relevant to decision making, 32 per cent felt it was relevant, 35 per cent said it was somewhat relevant, and just 8 per cent saw it as not relevant at all.

“The strategic importance of ESG is evident as investors increasingly factor it into the selection of alternative investment managers,” LGT Capital Partners stated.

“ESG’s role in identifying risks, driving operational efficiency and ultimately generating long-term performance makes it a fundamental consideration in portfolio construction.”

The firm also asked investors about what they saw as the most important environmental consideration, with climate change coming out on top.

The energy transition was ranked as the second most important topic, rising in importance for investors over the past five years, while pollution had fallen in importance and sat in third place.

Biodiversity was found to be an increasing area of focus for investors, rising to fourth spot.

“Climate change and energy transition remain at the forefront of ESG considerations,” said LGT Capital Partners.

“However, there is also an increasing focus on biodiversity. This shift reflects a deeper awareness of the need for sustainable solutions that protect ecosystems and the long-term investment opportunities they represent.

“ESG integration has entered a new and more complex phase. The previous consensus among investors about its importance has given way to a landscape where some stakeholders are pushing forward with ambitious ESG-related investment goals, while others are adopting a more measured approach.”

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