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October 10, 2022 at 04:21 PM
What You Need to Know
- Eighty-six percent of asset owners globally said they are implementing sustainable investing in their investment strategies.
- More than half of asset owners practicing sustainable investing say that mitigating long-term investment risk is a key factor.
- While social issues are the top priority for asset owners, there is a shortage of data.
Sustainable investing has become part of mainstream investing, according to a recent survey from FTSE Russell, a global index provider. But social issues have edged out climate concerns as the biggest priority.
Eighty-six percent of asset owners globally said they are implementing SI in their investment strategies, up 10 percentage points from the 2021 survey. In the Asia/Pacific region, this number rises to 97% of asset owners.
As part of this growing trend, 44% of respondents are incorporating sustainable investment and climate considerations into their strategic asset allocation models or framework, up from 33% in 2021.
The survey found that the asset classes for implementing SI continue to be varied. Fixed income now leads with 53% of SI allocations, compared with 45% for public equity. Infrastructure has made significant gains, rising from 26% in 2021 to 45% this year.
As for preferred investment vehicles, 77% of respondents choose separately managed accounts to accomplish sustainable investment goals.
For its study, FTSE Russell surveyed 184 asset owners with between $1.1 trillion and $3 trillion in assets under management between April 25 and May 18.
Long-Term Investment Risk Is Key
Asset owners that are implementing and evaluating SI are motivated by risk management, with 57% of all survey respondents saying that mitigating long-term investment risk is a key factor.
Avoiding reputational risk as a motivator fell 19 points to 38% in 2022.
The study found a correlation between an organization’s size and a heightened focus on risk. Seventy-three percent of participants with assets of $10 billion or more cited this as a reason, compared with just 42% of asset owners with assets between $1 billion and $10 billion.
Mitigating long-term investment risk remains a top priority across regions. In the Americas, however, 36% of asset owners, their eye on the regulatory requirement of SI, deem it a rationale for implementing or considering SI in their strategies. This is triple the number who said it was a priority in 2021.
“While the view on regulation has changed and is now seen as a potential constraint, it may well be driving consistency and standardization across the market,” the report’s authors note. “Positively, this year there emerged a more widely agreed view on what sustainable investment means to organizations.”
In Asia/Pacific, 58% of respondents said they are more concerned with capturing investment returns from SI opportunities, compared with 39% in the Americas and 28% in Europe, Middle East and Africa.
