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Social Themes Eclipse Climate as Top Sustainable Investing Priority: Survey

By Michael S. Fischer

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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.

Lack of Data Presents a Barrier

Half of respondents said the top barrier to increasing their SI adoption across asset classes is concerns about the availability of environmental, social and governance data and the use of estimated data.

Forty-one percent cited lack of standardization in ESG data, scores and ratings, and concern about the lack of quality or consistency of corporate reporting and disclosures.

The costs of SI adoption as a barrier have dropped sharply in importance across asset owners, falling from 29% in 2021 to 12% in 2022.

Among other barriers to increased SI adoption are concerns about SI methodology; questions about how to determine the best strategy or combination of strategies for the portfolio; concerns about financial performance; and limited historical data.

“The current economic headwinds and the adjustments we are seeing in sustainable investment strategies reinforce the ever-increasing need for robust and in-depth data to make informed decisions in this ever-changing economic environment,” Cornelia Andersson, group leader for sustainable finance and investment at the London Stock Exchange Group, said in a statement.

External investment managers are still an important source of credible information about SI, according to 50% of respondents. At the same time, they are turning away from consultants and toward mainstream information sources such as trade financial news media and journals.

Changing SI Priorities

Social themes are the number one priority for asset owners, according to the survey, increasing from 60% in 2021 to 73% this year. Broader environmental considerations come second in the list of priorities, at 58%.

Asset owners are less likely to consider climate/carbon a key priority in 2022, the factor falling from 67% last year to 41%. Despite the drop in prioritization of climate/carbon in favor of social themes, the level of concern with the investment impact of climate risk remains roughly stable among asset owners year over year, with 52% saying they are most concerned, compared with 47% in 2021.

While priorities are similar across regions, 72% of Asia/Pacific asset owners emphasize broader environmental considerations, compared with 53% in the Americas and 48% in EMEA.

Climate/carbon was a top priority in EMEA in 2021, cited by 77% of respondents, but now is a priority for only 36% of asset owners across the region. It has taken a back seat the 65% who favor social themes.

The study noted that if data related to social themes were more readily available, diversity and inclusion would be the top priority of 52% of asset owners, public policy of 49% and labor rights of 47% would be top priorities for asset owners.

Diversity and inclusion would be a key priority for 66% of respondents in Asia/Pacific, the highest out of all regions. The larger asset owners, those with assets of $10 billion or more, drive the prioritization of diversity and inclusion at 76%, followed by social standards at 48%.

Michael S. Fischer

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