FTSE Russell, a global index provider, has published the results of its 2023 global asset owner survey, an annual study analyzing how sustainable investment (SI) is perceived, considered, and used by asset owners across the world.
After five years of steady growth there has been a global dip in sustainable investment to 80 per cent this year, from 88 per cent in 2022, a new 2023 global asset owner survey by FTSE Russell reveals.
Though not a significant change, this dip can be attributed to influential macroeconomic factors, such as high interest rates to combat inflation, and geopolitical volatility caused by the war in Ukraine, the firm said in a statement. Despite short-term influences on sentiment toward sustainable investment, the firm believes that respondents maintain their long-term conviction for this investment theme.
Asset owners take a robust long-term view of their sustainable investment strategies while focusing on key priorities such as energy transition and well-run companies that prioritize environmental, social and governance considerations, the firm continued. The research shows that an equal number (73 per cent) of asset owners are implementing passive and active sustainable investment strategies, highlighting the mainstream characteristics of sustainable investment being part of the flight to passive investment strategies.
Where constructing investment portfolios has become more challenging due to macroeconomic-induced factors, investors also want to ensure that they are not encountering investment opportunities that are considered to be greenwashing and potentially damaging to their reputations and members’ interests, the survey shows. Governance is a priority that has significantly risen across all regions. The research has highlighted an increase in the priority of governance to asset owners this year compared with last year. The firm believes that governance is likely to continue as a priority focus area, which is also a supportive trend for the sustainable investment theme in general.
Certain pressures on asset owners appear to be more complex as the sustainable investment industry matures, the firm added. Some asset owners' priorities are included in their investment strategies. Governance is, but social and broader environmental themes are less so, highlighting that asset owners need to make more provisions so their investment strategies are more inclusive and representative of their priorities.
Perceived barriers do exist particularly because of lack of data quality, the survey shows. Fifty-eight per cent of respondents identified that as a challenge to meet regulatory requirements. In parallel, asset owners are identifying areas that can be resolved, such as by accessing the right, high-quality data and choosing effective data partners.
Fixed income remains the top asset class for sustainable investment allocation, the firm continued. Globally, 45 per cent of respondents indicated that they have implemented or are considering implementing sustainable consideration in fixed income, versus 66 per cent in the Asia-Pacific region. Infrastructure sees the most sustainable investment implementation and considerations (59 per cent) in EMEA, the firm added. Among fixed income asset classes, sovereigns topped the asset classes in which sustainability considerations have been implemented for the Asia-Pacific region, in contrast to the global preference for credit/corporate returns.
“Our research demonstrates the continual evolution of SI among asset owners and the differing priorities across the globe,” Sylvain Château, global head of Product, Sustainable Finance & Investment at LSEG, said.
“While the long-term trend for SI reflects a very positive trajectory, macroeconomic and geopolitical factors have influenced respondents’ short-term sentiment. Additionally, accessing the right data and choosing effective data partners can help to alleviate concerns around gaps in data and poor data quality. But as sustainable investment strategies continue to mature and a focus on governance grows, the quest for the right data is likely to become an even greater priority for asset owners,” Château added.