Institutional investors hold firm despite heightened geopolitical risks

Investors appear to be holding their portfolios steady despite a significant proportion acknowledging mounting geopolitical risks.

A snap poll of more than 160 institutional investors worldwide, conducted by London-based investment consultancy group Bfinance, found that most have not altered their strategic positions in response to the current trade war-driven economic maelstrom.

More than four out of five (82%) respondents reported a rise in geopolitical risks to their portfolios since mid-January.

This risk was most acutely felt in Europe, with 85% reporting heightened risk; just 4% stated a decrease. Both the Americas and ‘Rest of the World’ grouping reported an 80% risk rate.

According to Bfinance, investor commentary suggested that recent policy volatility, most notably in the US, has triggered a notable recalibration of geopolitical risk.

“Investors pointed to an increasingly unpredictable political environment, trade tensions, and shifts in global alliances as key contributors.”

Bfinance noted that the perception of increased geopolitical risk was consistently high across all investor types (which, beyond institutional investors, also included defined benefit pension schemes, insurers, endowments, family offices and sovereign wealth funds), with no particular group diverging significantly from the global average.

This result, it said, emphasises that heightened risk is not a regional or structural anomaly but a broad institutional consensus.

Despite the acknowledged geopolitical ructions, three-quarters (75%) of the surveyed institutional community said their risk appetite remained unchanged, with only a small proportion reporting any increase or decrease.

The investor outlook on ESG has, overall, diminished to some degree, particularly in light of green policies and DEI initiatives finding increasing disfavour among US policymakers. While nearly half (46%) of the survey respondents claim no change in their investment strategy, nearly a quarter (24%) felt ESG had become less attractive; just 9% saw the increased appeal of ESG.

Around half of all investors indicated they are actively re-evaluating their investment assumptions relating to ESG, impact, sustainable or climate-oriented investing.

“The commentary suggests this is not a wholesale rejection of ESG but rather a re-evaluation of how ESG strategies are applied in practice – especially in light of political developments in the US, where support for DEI and sustainability frameworks has become more contentious,” Bfinance wrote.

However, the sentiment on ESG varied considerably depending on the type of investor. For instance, while pension funds, insurers, family offices and wealth managers remained largely unchanged in their assessment of ESG, institutional investors were more polarised, with 36% stating they were “unchanged,” while the much of the remainder were recalibrating, with 25% seeing ESG as “less attractive,” while, strikingly, 17% found it “more attractive”.

Those “mission-linked investors”, including endowment funds, were found to be more resilient in their ESG commitments, while those facing more performance scrutiny were likely to be reconsidering their positions.

Bfinance concluded: “The findings underscore a period of strategic recalibration among institutional investors. While geopolitical risks and policy shifts, particularly in the US, have prompted a reassessment of certain investment strategies, the core commitment to long-term objectives remains intact.

“European investors, in particular, continue to uphold ESG principles, whereas their US counterparts navigate a more complex and evolving policy landscape.”