The 2021 Climate Change Survey from the International Forum of Sovereign Wealth Funds and One Planet Sovereign Wealth Funds shows a large increase in ESG investing by sovereign wealth funds.
Last year’s IFSWF-OPSWF Climate Change Survey showed only 24% of respondents incorporated ESG considerations in their investment process and only 18% had a dedicated ESG team. In the latest survey of 81 global sovereign wealth funds, 71% say they have adopted an ESG approach and less than 10% said they didn’t consider climate change in their investment approach at all.
The survey also revealed that while only 9% of respondents reported that they were mandated to address climate change, almost 65% are proactively adopting such an investment approach, rather than waiting for it to be included in their mandate. Overall, sovereign wealth funds are doing this because they believe that it is “the right thing to do” (50%) with 23% saying they thought it would boost returns and 27% saying it would reduce risks to their portfolio.
The survey says that an important reason why these sovereign wealth funds have been able to adopt these strategies is that stakeholder opposition has declined over the past year. In 2020, nearly a fifth of respondents reported that a substantial obstacle to adopting an ESG or climate change investment approach was that stakeholders did not believe these issues to be important. This year this proportion had dropped to only 3%.
Renewable energy remains the most popular ESG investment sector, with 70% of respondents saying it was the most attractive climate-related sector. Private equity, real assets and listed equity continue to be the most usual asset classes for sovereign wealth funds to pursue targeted portfolio construction for climate-change-related purposes.