Sustainable investing enters mainstream

The sustainable investing (SI) has now become mainstream, with the majority of asset owners (86%) globally implementing now SI in their investment strategies, compared to 76% in 2021, but barriers to increased adoption still exist, according to the FTSE Russell’s survey of global asset owners.

Across the APAC region that figure was even higher and rose to 97% covering both asset owners who were already implementing SI and those who were evaluating SI considerations into their strategies.

However, the asset classes for implementing SI remained varied, with fixed income now leading SI allocations, surpassing public equity (53% v 45%) and the relatively new alternative asset class of infrastructure having also made notable gains in SI – rising from 26% in 2021 to 45% in 2022.

The study also found a correlation between the size of the organisation and a heightened focus on risk, with three in four respondents with assets under management (AUM) of $10 billion or more citing this reason compared with only 42% of asset owners with an AUM between $1 billion and $10 billion.

According to FTSE Russell, the main barrier to increased SI adoption were concerns about availability of environmental, social, governance (ESG) data and the use of estimated data (50%), followed by lack of standardisation in ESG data and concerns about the lack of quality or consistency of corporate reporting and disclosures.

At the same time, respondents admitted that the costs of SI had significantly dropped, from 29% in 2021 to 12% in 2022, but other barriers to adoption included SI methodology (33%), questions about how to determine best strategies for a portfolio (27%), concerns about financial performance (24%) and limited historical data (23%).

The survey found that the priorities have changed as asset owners indicated social themes as their key priority when it came to SI and which was reflected by the growth of importance of this factor from 60% last year to 73% this year.

Also, broader environmental considerations came second in the list of priorities at 58% while carbon/climate fell behind social and environment, with 41% considering it a priority in 2022.

The study also found that asset owners were less likely to consider climate/carbon a key priority in 2022 – falling from 67% in 2021 to 41%.

The investors also confirmed that diversity and inclusion (52%), public policy (49%), and labor rights (47%) would be their top priorities if the data related to social themes was more readily available.

Diversity and inclusion would be also a key priority for 66% of respondents in APAC, the highest out of all regions.

“Our survey demonstrates the continual evolution of sustainable investment among asset owners and the differing priorities across global regions,” Cornelia Andersson, group leader, sustainable finance and investment at LSEG, said.

“The current economic headwinds and the adjustments we are seeing in sustainable investment strategies, reinforces the ever-increasing need for robust and in-depth data to make informed decisions in this ever-changing economic environment.”