Risk management biggest driver for sustainable investing

Global index, data and analytics provider FTSE Russell announced today the release of its annual Sustainable Investment survey, exploring the perception, consideration and use of sustainable investments and issues by asset owners globally.

For the report, FTSE Russell surveyed professionals at 179 global asset owners across North America, EMEA and Asia Pacific, including pension funds, insurance companies, government organizations and endowments, and across a broad range of AUM levels.

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The report indicated a very high level of interest in sustainable investments, with more than 8 in 10 asset owners implementing or evaluating sustainable investing in their portfolios, with risk management issues as the greatest drivers. 64% reported that mitigating long-term investment risk as a rationale for including sustainable investment considerations in investment strategy, compared with 45% who cited client demand and only 31% who mentioned regulatory requirements as a driver.

Jaakko Kooroshy, Global Head of SI Research, FTSE Russell, said:

“For many years, FTSE Russell has conducted these asset owner surveys on ESG considerations in the context of smart beta. This year, we have deepened the survey around sustainable investment and the results paint a clear picture. Sustainable investment is not a trend—it is now the market standard, with 84% of asset owners around the globe evaluating or implementing sustainability into their portfolios.”

One of the key focus areas of the survey was on the asset owners’ perceptions on the role of regulation in sustainable investing. More than half of asset owners said that regulation could act as either an enabler or constraint to sustainable investment, attitudes varied significantly by region, with 59% in Europe reporting viewing regulation only as a potential enabler, compared to only 9% in APAC, and 22% in the US viewing it as only a potential constraint.

For those who did not see regulation only as a potential constraint, the most helpful roles cited for regulation included improving the quality and consistency of corporate reporting, followed by improved investor disclosures regarding sustainable investment strategies and outcomes.

Other key findings:

  • Barriers to increased adoption of sustainable investing included lack of standardization in ESG data, scores and ratings (59%), and concerns around quality and consistency of disclosures (45%).
  • Priority focus areas include climate and carbon (67%) and social themes (60%).
  • 86% of respondents report being “somewhat” or “most” concerned with the investment impact of climate risk.

David Harris, Global Head of Sustainable Finance, London Stock Exchange Group, said:

“This survey provides a rich source of detail around the differing conviction, sophistication and approach of asset owners to integrating sustainable investment into their strategies. One of the most striking findings is whilst asset owners’ views on general financial regulation is variable, 82% of them support sustainable investment regulation where it is regarded as enabling consistency of reporting. A note of caution is the concern 60% of asset owners have over regional inconsistencies in such regulations.”