Sustainable investment is gaining momentum among asset owners and has become the "market standard" in Asia-Pacific, with climate change and carbon emissions the main focus areas for most of them in the region, according to a survey conducted by index provider FTSE Russell.
Nearly 85 per cent of asset owners globally were implementing or evaluating socially responsible or environmental, social and governance (ESG) investment considerations this year, up from 53 per cent in 2018, the joint study by the subsidiary of the London Stock Exchange Group and Radius Global Market Research showed. In Asia-Pacific that figure was slightly higher than the global average at 88 per cent.
Sustainable investing, measured by ESG factors, has resonated with more asset managers and owners as society demands a wider application of ethics in investing, while regulators across the world impose disclosure requirements.
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"Sustainable investment is not a trend - it is now the market standard," said Jaakko Kooroshy, global head of sustainable investment research at FTSE Russell, adding that asset owners globally were rapidly evaluating or implementing sustainability considerations into their portfolios.
The survey released on Wednesday collected responses from 179 asset owners, including pension funds, endowments, family offices and sovereign wealth funds from Europe, the Middle East and Africa (EMEA), North America and Asia-Pacific on how sustainable investment is perceived, considered and used. Nearly half of them had over US$10 billion in assets under management and another 30 per cent between US$1 billion and US$10 billion.
This was also the first time FTSE Russell focused on sustainable investment, having covered ESG considerations in its annual global survey since it started in 2017.
In Asia-Pacific, 88 per cent of those surveyed have made an allocation to sustainable investment, with only 6 per cent saying they have not or have no plans to evaluate sustainable investment. In EMEA, sustainable investment evaluation and adoption was almost universal, with 97 per cent of asset owners doing so, up from 72 per cent in 2018. The figures for North America also showed an increase from 39 per cent in 2018 to 68 per cent in 2021. The study did not provide a comparable figure for Asia-Pacific for previous years.
Some 65 per cent of Asia-Pacific asset owners cited mitigating long-term investment risk and avoiding reputational risk as the top two main reasons for implementing sustainable investing strategies. In EMEA and North America, asset owners ranked societal good and achieving better risk-adjusted performance as their top reasons respectively, after mitigating long-term investment risk.
On sustainable investment priority areas, climate and carbon issues were the main focus for over two-thirds of asset owners in Asia-Pacific, followed by broader environmental considerations. Climate and carbon were also the top priority in EMEA, while in North America the focus was strongest on social themes, followed by governance and climate and carbon.
Asset owners in different regions also expressed diverging views on the investment impact of climate risk. Rating their concerns on a zero-to-10 scale, over half of asset owners in EMEA and Asia-Pacific expressed deep concern. In contrast, that level of concern declined to less than 30 per cent among North American respondents, with one-third of US asset owners stating they were not concerned or not very concerned about the investment impact of climate risk.
"Our survey of asset owners showed that sustainable investment is a well-established and maturing market across all regions, but despite widespread headline adoption, this investment approach continues to be a rapidly evolving, dynamic space," the report concluded.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.
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