New study lays out near-term tailwinds for sustainable investing, as well as challenges for asset owners
Institutional investors are hoping to drive positive change by allocating more assets into thematic ESG strategies – but determining their impact continues to be a challenge.
In a study commissioned by AGF Investments, Coalition Greenwich held 151 telephone and online interviews with corporate pensions, public pensions, and endowments and foundations across North America and Europe. The aim: to analyse investors’ evolving sentiment toward sustainable investments, and how it shapes current thinking around portfolio implementation and reporting.
The study found that over the past five years, the percentage of asset owners incorporating some aspect of sustainability in their investment process has risen from 52% to 72%. By 2026, nearly eight out of 10 institutions surveyed said they expect they will have embedded sustainability criteria into their investment decision-making processes.
Institutions primarily expect their sustainable investments to either match or outperform benchmark returns; nearly 45% compare sustainable investing fund performance to a broad equity benchmark, while about 30% use ESG or specialty indexes. However, the survey indicated that internal and external stakeholders will increasingly press asset owners and their managers to show how their investments are making a positive impact.
Faced with that pressure, asset owners in the study are increasingly turning to thematic investment strategies as tools to help measure and maximize impact. Survey respondents also believed such strategies can pick up on investment trends sooner than other approaches, and saw them as a way to diversify portfolios that include fundamental, quantitative, and index approaches.
Today, three quarters of the institutions studied say they employ sustainable thematic investing strategies in their equity portfolios, including two thirds that have increased their allocations over the past three years. Roughly 60% of respondents are also using sustainable thematic strategies in fixed income, and 50% have them within their alternative sleeves.
Allocations to thematic investment strategies are also growing more popular as a way to boost ESG levels within portfolios, the survey said, as many asset owners come to believe that they produce greater impact than ESG integration strategies. Unsurprisingly, the environment was the biggest priority by far among institutions selecting thematic strategies; health and well-being, as well as diversity and inclusion, were also prominent focus areas.
Despite the honest efforts of institutions to make a difference with their investments, exactly how they must report their progress remains a difficult question to answer. “Currently, there is no consensus among institutions about how best to approach the task,” Coalition Greenwich said.
The report noted that the reliability of third-party ESG data is still very limited, which complicates both the process of selecting suitable ideal asset managers and investments, and determining how effective those processes are. In-house impact measurement is also difficult for around one in five institutions – including about a quarter of U.S. asset owners – that don’t have a process to measure the impact of their sustainable investments.
“Roughly a third of institutions employ an external provider—often an investment consultant— to review and assess impact,” the report said. “Most institutions rely on reports from their asset managers, including some asset owners who provide managers with specific guidelines on how to report impact.”
