Aviva Investors 5th Real Assets Study has found that sustainability considerations are a factor for 9 out of 10 real assets investors.

The report says that 93% of global institutional investors actively consider ESG and sustainability in their real assets investment decisions, with 17 per cent considering it a critical factor. Aviva surveyed 500 institutional investors, including pension funds, insurers, global financial institutions and official institutions, together representing more than $3.5 trillion in assets.

Aviva also say that 64% of institutional investors plan to increase their allocations to real assets over the next two years, with 46% planning to do so by up to 10%. The highest allocations are by investors in North America, where almost a quarter have greater than 20% of their portfolio in real assets, compared to 19% of European and 17% of Asia Pacific investors.

Over the next 12 months, difficulty of finding opportunities (53%), transaction costs, and valuations (both 50%) are considered the greatest barriers to increasing allocations to real assets. Respondents also consider greenwashing the biggest material risk (52%) to investment in sustainable real assets, ahead of concerns over valuations (44%). Illiquidity (69%) is the top concern for investing in real assets more generally, whilst valuation risk (57%) is also a big concern, especially for pension funds (61%).

Daniel McHugh, Chief Investment Officer, Real Assets, at Aviva Investors, says, “Inflation had an acute impact on the economic and investment landscape in 2022, making it increasingly expensive to hedge against it through traditional asset classes, whilst rising interest rates have eroded returns. The ability of real assets to provide inflation-linked income has woken investors up to the attractiveness of these strategies beyond simply being a diversification play. They are now playing a meaningful role in overall portfolios, offering investors a broad menu of options with varying degrees of risk and inflation protection built in. The Study shows that demand is also being driven by the ability to assess the positive impact of these investments beyond returns, such as contributing to sustainability-related objectives.”