Asset owners cut ESG investing this year

The proportion of asset owners globally that are implementing sustainable investing has fallen from 88% in 2022 to 80% this year according to a FTSE Russell annual survey.

The survey says that after five years of growth, macroeconomic factors and geopolitical volatility has led to a decline in ESG investing this year. More than half (52%) of asset owners say that external demand from members and clients is the top reason why they are consistently implementing SI, increasing from 42% in 2022 and 45% in 2021.

Half (51%) of asset owners say their motivation for implementing or considering SI can be attributed to mitigating long-term investment risk. Avoiding reputational risk (37%) and societal good (36%) are also listed as key motivators for asset owners implementing SI.

It also finds that fixed income remains the top asset class for sustainable allocations globally, with 45% of asset owners having implemented or considered implementing SI in the asset class (compared to private equity at 29%). Infrastructure continues to make gains in EMEA, rising from 42% in 2022 to 59% in 2023 – this is compared to 44% globally.

The survey also finds that many asset owners are implementing passive strategies as active strategies (73%). In just one year, investors strategies have changed significantly, with an 11-percentage point drop in active strategies and an impressive 15-percentage point increase in passive strategies. In EMEA, 79% of asset owners are implementing active strategies, compared to 63% implementing passive strategies.

Governance is a priority that has risen across all regions, increasing notably from one in three (33%) in 2022 to 54% of asset owners globally in 2023. In EMEA, climate/carbon has increased significantly as a priority among asset owners – rising from 36% in 2022, to 73% in 2023. Across asset owners globally, social themes have fallen as a priority, dropping from 73% in 2022 to 37% in 2023. In EMEA, this has dropped from 65% to 40%.

While the barriers to SI remain varied, the most significant challenge to SI adoption is data focused, with half (50%) of asset owners calling out ‘concerns about availability of data and the use of estimated data’ (46% in EMEA). Among the most challenging factors facing asset owners to meet regulatory requirements is the lack of trust in data quality (58%), in EMEA this figure rises to 64%. Also, 42% r, this rises to nearly three in four (71%) asset owners in EMEA, compared to 34% in APAC.