Leading adopters are embedding governance-based Future uptake of ESG integration requires more engagement, with an expectation of improved long- performance data, while growth in active ownership term returns requires third-party assistance While non-adopters wait on the evidence of ESG The adoption of negative screens is encouraging investment outcomes, leading adopters are moving for ESG advocates; however, the majority of current further down the path of integrating ESG principles non-adopters are unwilling to move further in the into investment allocation and management absence of strong objective evidence of positive decisions, including through active engagement with —_ investment risk/return outcomes from ESG investing or participation in investee company decision-making. _ relative to cost. ESG adopters overwhelmingly Larger sovereigns with internal asset management observe a positive differential in long-term returns capability were most confident in their ability to (with 70% of respondents perceiving an increase execute their ESG strategies, due to their higher levels in returns from ESG as seen in figure 26), and of engagement with their investments (figure 25). many adopters explained that they were seeking to These larger sovereigns noted that direct engagement integrate systematic ESG risk measurement into the benefits substantially outweighed the cost of external investment process. However, ESG user and non-user advisers and representation; notably respondents acknowledge that there is a need for - The largest sovereigns drew a clear line from long- robust data on integrated ESG strategies, which can term investor influence on corporate structure only be addressed through continued measurement and executive remuneration to ‘active’ investment of the impact on performance. performance through the cycle Despite uncertainties around the impact of ESG - Sovereigns felt able to better represent the interest integration, there is a growing consensus among