A survey suggests that environmental and social factors now play a part for many investors in deciding how to apportion money, and many think ESG considerations don't harm returns.

Testing investment ideas against environmental and social principles adds to rather than detracts from returns from alternative channels such as hedge funds and private equity, at least according to more than half of the institutions in 22 countries recently surveyed by Mercer, the global consultancy, and LGT Capital Partners, the Swiss firm.

Entitled Global Insights on ESG in Alternative Investing, the research focuses on why and how institutional investors incorporate ESG considerations in alternative asset classes.

More than three-quarters of respondents (76 per cent) incorporate ESG criteria when investing in alternative asset classes, while 57 per cent of respondents believe that incorporating ESG criteria has a positive impact on risk-adjusted returns, and only 9 per cent think that it lowers them.

Events likely to increase long-term risk to a firm or hurt its reputation are seen as significant; topics such as carbon intensity, controversial weapons and bribery and corruption garner strong support, while exclusion criteria, such as alcohol or tobacco, are rarely considered.

More than half (54 per cent) of institutional investors who incorporate ESG criteria into investment decision-making have done so for three years or less, which suggests rising expectations for investment managers over time. Greater clarity on techniques and strategies for ESG incorporation would help investors progress more quickly, the report said.

“CIOs, heads of asset classes and portfolio managers of large and small institutions from 22 countries clearly recognise the positive effects of ESG integration on risk-adjusted returns. This shows that ESG analysis has moved beyond ethical concerns and has firmly found its place as a risk and investment management topic. Given the high rate of recent adoption of ESG and broad interest in the topic, we can safely assume that ESG integration will continue its rapid expansion,” Tycho Sneyers, managing partner and chairman of LGT Capital Partners' ESG committee, said.

Headquartered in Pfaeffikon, Switzerland, LGT Capital Partners has $50 billion of assets under management and has offices in Asia, North America and Europe. (It is not the same firm as Liechtenstein-headquartered LGT, the private bank.)