A majority of asset owners globally actively integrate ESG factors into their investment process, according to a new survey published today by the Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Investment Management.
The survey polled 110 public and corporate pensions, endowments, foundations, sovereign wealth entities, insurance companies, and other large asset owners worldwide, 92% of which had total assets over $1 billion.
The report says that nearly eight in 10 (78%) investors surveyed agree that sustainable investing is a risk mitigation strategy. Additionally, asset owners already practicing sustainable investing have identified clear benefits to reputation and stakeholder engagement.
Sustainable investing has gathered enough momentum in recent years to reach the mainstream. That’s made clear by recent news like that of S&P Global launching its S&P Global Environmental, Social, and Governance (ESG) Scores with coverage of more than 7,300 companies, representing 95% of global market capitalization.
Or the fact that T. Rowe Price recently reported that ESG disclosure issues became the number one topic in its engagements with the managements of companies around the world in 2019.
The company said that the rising risks associated with climate change will impact virtually its entire universe of portfolio holdings to varying degrees. Because of this, climate change alongside other ESG factors is being increasingly factored into analysts’ evaluation of company fundamentals.
Results from the survey identify several trends reflecting the increasing growth in sustainable investing as a whole. Key findings include:
- Asset owners increasingly embrace sustainable investing
- Adoption increased from 70% in 2017 to 80% in 2019
- A further 15% of respondents are actively considering sustainable investing adoption
- Nearly six in ten (57%) can envision a time when they will only allocate to investment managers with a formal approach to ESG
- Asset owners seek better tools and data to measure sustainability
- Asset owners are eager to measure and report portfolio impacts, but nearly a third (31%) lack adequate tools to assess investments against their ESG goals
- 86% believe that investment managers can play a key role in ESG reporting and education
- Among asset owners that make thematic or impact investments, 88% seek to address environmental themes
- Climate change, water solutions, plastic waste and the circular economy are the top environmental issues they seek to address
- For social issues, gender diversity and education are the top priorities
- ESG integration remains the most common approach to sustainable investing
- Across all approaches, investors find the highest quality sustainable investing strategies in public equities (78%) and fixed income (69%)
- 45% of sustainable investors allocating to fixed income are actively investing in green or sustainability bonds or bond funds