Sustainable investing is now mainstream globally says FTSE Russell

Sustainable investing is now mainstream globally says FTSE Russell

Sustainable investing is now mainstream globally says FTSE Russell
Steve Randall

Sustainable investment (SI) is now a dominant force in portfolios across the globe with allocations surpassing public equity in 2022.

New research from FTSE Russell reveals that 86% of asset owners are now implementing sustainability into their portfolios, a rise of 10 percentage points from last year.

The mainstreaming of SI is even clearer in the Asia Pacific region where 97% of asset owners are currently implementing or assessing SI considerations into their strategies. In the Americas it is 77% with 89% in Europe.

Two in five respondents are considering how to incorporate sustainability into strategic asset allocation (SAA) models or frameworks, while almost a quarter already do and 24% also use climate/sustainability indexes within models and frameworks.

Looking at asset classes, 53% of respondents have implemented SI for fixed income, 45% for public equity, 45% for infrastructure, 34% for real estate, 31% for private equity, and 30% for multi-asset.

What’s the motivation?

Asset managers are adopting SI mostly to mitigate long-term investment risk (57%) followed by societal good (45%) and achieving better risk-adjusted performance.

There was a 19-point year-over-year decline in the share who said they are concerned about reputation risk (to 38%).

Although there was only a slight rise in those who cited regulatory requirement as a key factor in implementing SI (35% compared to 31% in 2021), the Americas stood out with a rise of 24 points to 36%.

Globally, there is heightened focus on risk for larger organisations with 73% of respondents with an AUM of $10bn or more citing this compared with just 42% of asset owners with an AUM between $1bn and $10bn.

ESG continues to grow in importance with social themes growing as a key priority for asset owners (from 60% last year to 73% in 2022) while 58% cite environmental issues.

Asia Pacific prioritizes environmental concerns more (72%) than those in the Americas (53%) and Europe (48%). Asia Pacific is also more likely to prioritize diversity and inclusion.

Barriers to SI

Despite intention, a lack of reliable ESG data (50%) remains a key barrier to SI implementation along with lack of standardization and consistency of information (41%), concerns about SI methodology (33%), questions about how to determine best strategy/strategies for portfolios (27%), concerns about financial performance (24%) and limited historical data (23%).

Cost is less of an issue with just 12% of asset owners saying this is a barrier, compared to 29% in 2021.