Sustainable investment is now a standard among asset owners

Global survey findings reveal majority view on ESG adoption, risk mitigation, and potential benefits of regulation

Sustainable investment is now a standard among asset owners

New research from global index, data, and analytics provider FTSE Russell offers new evidence confirming the increasing trend towards mainstream adoption of sustainable investment across the world.

In the latest edition of its annual Sustainable Investment survey of asset owners, FTSE Russell found that 84% of asset owners globally are either implementing or evaluating sustainable investment considerations this year, compared to just 53% in 2021.

“For many years, FTSE Russell has conducted these asset owner surveys on ESG considerations in the context of smart beta,” said Jaakko Kooroshy, global head of SI Research at FTSE Russell. “This year, we have deepened the survey around sustainable investment and the results paint a clear picture.”

Adoption and evaluation were near-universal in EMEA at 97%, up from 85% last year and 72% in 2018. There was also an acceleration in North America, from 39% in 2018 to 68% in 2021.

Globally, 82% of respondents support sustainable investment regulation, with 78% of respondents within the group saying that it might improve the quality and consistency of corporate reporting and disclosures. However, a 60% majority of asset owners were also concerned about regional inconsistencies in sustainable investment and ESG regulation.

For almost two thirds (64%) of all asset owners, long-term risk mitigation is a key factor in implementing and evaluating sustainable investment. That view tends to be more prominent among larger asset owners, with 70% of respondents having at least US$1 billion agreeing compared to just 42% of those below that threshold. Reputational risk was also a factor for consideration, with 49% of North American asset owners adopting sustainable investing to avoid harming their institution’s reputation; that sentiment rose to 60% in EMEA and 64% in the Asia Pacific region.

Regions also diverged in terms of priority areas of investment. Climate and carbon was the point of focus in EMEA (77%) and Asia Pacific (68%). In North America, social themes were the top priority (62%), followed by governance (58%) and climate/carbon (56%).

The divergence in prioritizing climate and carbon investment was mirrored in opinions on the investment impact of climate risk. On a zero-to-ten scale, over half of asset owners in EMEA and APAC said they were very concerned (8, 9, and 10). Fewer than 30% of asset owners in North America shared that level of concern, and one third said they were not concerned or not very concerned (0, 1, and 2).

In the wake of increased consciousness around social issues due to the COVID-19 pandemic, 60% of asset owners said they regard social themes such as diversity and inclusion, human rights, customer responsibility, and social impact as a priority in their sustainable investing efforts. Among those who didn’t share that priority, more than half said they would concentrate more on those themes if social data were reliable and widely available.