A new survey by FTSE Russell has revealed that sustainable investment (SI) has dipped among asset owners both in the Asia-Pacific region and around the world in the past year.
According to the survey, 90 per cent of asset owners in the Asia-Pacific have implemented or evaluated SI in their investment strategies, down from 97 per cent in 2022.
Globally, after five years of steady growth, the proportion of asset owners that are implementing and evaluating SI similarly fell from 88 per cent to 80 per cent.
FTSE Russell said this dip was linked to macroeconomic factors, including high interest rates to combat inflation, as well as geopolitical volatility caused by the war in Ukraine.
The firm also singled out the influence of responses from asset owners in the US, where environmental, social and governance (ESG) considerations were said to have become “contentious in the country’s political system”.
“While we see that SI in the Asia-Pacific region has dipped in line with global trends, the number of asset owners who continue to focus on SI in their strategies remains high,” said Tony Campos, head of sustainable investment, index investments group at FTSE Russell.
“We are seeing more awareness from asset owners on the importance of including SI, as well as more in-depth feedback around the barriers that they face in adoption. The views expressed by asset owners reflect a need for the industry to clearly define ESG parameters for both asset owners and investors alike to better understand SI.”
Concerns about the availability of ESG data and the use of estimated data was identified as the biggest barrier to SI adoption by 50 per cent of global asset owners, in line with last year.
A lack of standardisation in ESG data, scores, and ratings was the next biggest barrier for 37 per cent of global asset owners, a slight improvement on a year ago (41 per cent).
Concerns about financial performance increased from 24 per cent in 2022 to 30 per cent in 2023, while regulatory or fiduciary constraints jumped from 20 per cent to 29 per cent.
This year, FTSE Russell also surveyed respondents about greenwashing for the first time.
Thirty-six per cent of those who have not implemented SI indicated they are concerned about potential reputational risk of greenwashing, and 27 per cent of those who have implemented some SI considerations agreed that greenwashing is a barrier to further adoption.
The issue of greenwashing remains a top priority for regulators around the world, including the Australian Securities and Investments Commission (ASIC) locally.
For asset owners in the Asia-Pacific, an inability to align their portfolio with SI was identified as the most challenging factor when trying to meet regulatory requirements (52 per cent).
A lack of trust in data quality (50 per cent) and differences in disclosure requirements across multiple jurisdictions (38 per cent) also pose a challenge to asset owners in the region.
But the survey also found that Asia-Pacific asset owners recognised the benefits of recent regulatory developments surrounding the area of SI.
The consolidation of ESG reporting standards bodies (65 per cent), the development of sustainable finance and green taxonomies (58 per cent), and investor disclosures around SI strategies and outcomes (45 per cent) were all seen as welcome developments.
“While the long-term trend for SI reflects a very positive trajectory, macroeconomic and geopolitical factors have influenced respondents’ short-term sentiment,” commented Sylvain Château, global head of products, sustainable finance and investment at LSEG.
“Additionally, accessing the right data and choosing effective data partners can help to alleviate concerns around gaps in data and poor data quality. But as sustainable investment strategies continue to mature and a focus on governance grows, the quest for the right data is likely to become an even greater priority for asset owners.”
Last week, three networks of investors who collectively manage more than $150 trillion called on the federal government to introduce a “clear framework” for developing and disclosing corporate climate transition plans in Australia.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.