Morningstar report shows rising importance of focus on sustainable investing practices
Asset owners globally are becoming more focused on sustainable investing even as they grapple with implementation challenges.
Research from Morningstar which draws on opinions from 500 asset owners in 11 countries across North America, Europe, and Asia Pacific reveals that 67% believe ESG has become more materially important to investment policy over the past five years.
Environmental and net zero are key drivers of the ESG materiality and the asset owners, who have almost $11 trillion in combined assets, are increasing their allocations to ESGF strategies.
Some of the answers to the survey reiterate continuing themes that make implementation harder for asset owners, such as the lack of standardized data for the ESG market (30% said this) and reliability and timelessness of the data (29%). Last year just 15% cited these challenges.
The majority predict that AI adoption will increase in five years, most likely in data collection (70%) and ESG analysis (66%).
Sustainable investment strategies faced tougher times in 2022 as carbon-intensive energy and utilities sectors gained while the more ESG friendly technology sector weakened, making overall returns a factor in holding back from implementation of ESG strategies.
"As stewards of some of the largest pools of global capital, asset owners have stayed anchored to their fiduciary duty despite a range of challenges related to ESG market data, regulatory confusion and market performance," added Arnold Gast, ESG Research Director at Morningstar Sustainalytics. "As their job becomes increasingly complex, asset owners continue to raise their expectations of a range of key stakeholders to provide better insight, research, data and tools to address the evolving sustainable investment landscape."
Regulatory challenges
Regulation remains an issue too with three in ten respondents citing this as an implementation challenge, up 10 percentage points from a year ago.
The interviews with asset owners earlier this year and the latest survey both highlighted how lack of clarity and rising costs are ESG regulation pain points with 28% of those surveyed saying ESG regulations have been a hindrance and 42% see them as confusing or unclear (up from 29% last year).
The latest study follows direct interviews with 10 asset owners including pension funds, insurance general accounts, outsourced CIOs and family offices. Most manage more than $1 billion and over a quarter manage at least $10 billion.
"The second Morningstar Voice of the Asset Owner survey confirms that institutional investors remain highly committed to integrating ESG factors into their global investments, but challenges related to lack of regulatory clarity and the need for better data and resources continue to persist,” commented Thomas Kuh, Morningstar’s head of ESG Strategy.
