Approximately three-quarters of institutional investors say that risk mitigation is the main driver of their increased interest in environmental, social and governance (ESG) considerations.
That is according to research cited in a new report by Swiss Re released yesterday, which reveals that those that integrate ESG considerations exhibit better performance across their portfolios.
It highlights how the vast majority of investors now have some sort of ESG strategy, but that only a third fully incorporate sustainability and ethical principles into their investment decisions.
"We provided evidence that investors with better sustainability footprints exhibit higher risk-adjusted investment performance," University of Geneva assistant professor of responsible finance, Philip Krueger, said.
"Our analysis suggests that the main mechanism through which better sustainability translates into better investment performance is not return enhancement, but rather risk reduction."
"As such, we find that many standard risk measures are significantly lower for institutions with better sustainability footprints."
The report cites estimates that ESG assets under management have reached $22.9trn (£17.7trn) worldwide, with the majority based in Europe, followed by the US and Canada.
However, it argues that clear definitions, standards and methodologies are needed for more widespread ESG adoption, while a lack of suitable investment products, and a focus on short-termism, also act as barriers.
Swiss Re announced yesterday that it is has decided to systematically integrate ESG benchmarks into its investment decisions - one of the first in the re/insurance industry to do so.
The company said it is convinced that taking ESG criteria into account makes economic sense and reduces downside risks, especially for long-term investors, and are making it an integral part of its investment process.
"Enhancing our investment portfolio by adopting broad-based ESG benchmarks has been the most meaningful and strategic step in our journey to integrate ESG considerations," Swiss Re group chief investment officer, Guido Fürer, said.
"These benchmarks represent a suitable tool to achieve the desired investment behavior and set the right measurement both from a performance and ESG perspective."
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