Majority of global institutional investors implementing sustainable investing: survey

The asset class for implementing sustainable investing are varied, with fixed income now leading these allocations at 53 per cent, compared to public equity and infrastructure (both at 45 per cent).

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When asked the key factor for implementing and evaluating sustainable investing, 57 per cent of respondents cited mitigating long-term investment risk, followed by reputational risk (38 per cent this year compared to 57 per cent in 2021). In the Americas, the regulatory requirement of sustainable investing was a key factor for 36 per cent of respondents. In Asia-Pacific, respondents were more concerned about capturing investment returns from sustainable investing opportunities (58 per cent), compared to other regions — 39 per cent in the Americas and 28 per cent in Europe, the Middle East and Africa.

In terms of the No. 1 barrier to wider adoption of sustainable investing, 50 per cent of all respondents cited environmental, social and governance data. Lack of standardization in ESG data, scores and ratings and concern about the lack of quality or consistency of corporate reporting and disclosures followed in joint second at 41 per cent.

Other barriers include the costs of adopting in sustainable investing (12 per cent in 2022 compared to 29 per cent in 2021), concerns about sustainable investing methodology (33 per cent), questions about how to determine best strategy or combination of strategies for their portfolio (27 per cent), concerns about financial performance (24 per cent) and limited historical data (23 per cent).

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The survey also found nearly three-quarters (73 per cent) of global institutional investors reported social themes are their key priority, increasing from 60 per cent in 2021. This was followed by broader environmental considerations (58 per cent) and carbon/climate (41 per cent). Despite the drop in prioritization of climate/carbon in favour of social themes, the level of concern with the investment impact of climate risk remained roughly stable among respondents, at 52 per cent compared to 47 per cent in 2021.

While priorities are similar across regions, respondents in Asia-Pacific were more likely to emphasize broader environmental considerations (72 per cent), compared to the Americas (53 per cent) and EMEA (48 per cent). Climate/carbon was a top priority in EMEA in 2021 at 77 per cent, but now sits as a priority for 36 per cent of asset owners across EMEA in 2022, taking a back seat to social themes (65 per cent).

If the data related to social themes were more readily available, diversity and inclusion (52 per cent), public policy (49 per cent) and labour rights (47 per cent) would be the top priorities for respondents.  Diversity and inclusion would be a key priority for respondents in Asia-Pacific (66 per cent), the highest out of all regions. The larger asset owners, with assets under management of US$10 billion or more, drive the prioritization of diversity and inclusion at 76 per cent, followed by social standards at 48 per cent.

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“Our latest survey takes an in-depth look at the priorities, challenges and opportunities within sustainable investment for asset owners globally,” said Sylvain Château, global head of sustainable investment product management, benchmarks and indices at FTSE Russell, in a press release. “It once again emphasizes the importance of sustainable investment for asset owner strategies and sustainable investing is now truly mainstream around the globe.

“It’s also interesting to see that in sustainable investing fixed income is now as much top of mind as the equity space.”