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How global investors are implementing ESG

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Equities are still the most popular asset class for implementing ESG, according to a new study, as allocations to ESG bonds are tipped to rise in the future.

A new study by Capital Group has revealed that 81 per cent of global investors are implementing ESG through equities, significantly above any other asset class.

The asset manager’s third annual ESG Global Study showed that equities remained the most popular asset class for implementing ESG, ahead of fixed income (58 per cent), alternatives (44 per cent), emerging markets (31 per cent), and real estate (30 per cent).

“We see investors globally continue to favour an active approach with fundamental research, as this helps identify companies with credible transition plans that will be critical for further ESG adoption,” said Jessica Ground, global head of ESG at Capital Group.

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Seventy-four per cent of the investors surveyed preferred active funds to integrate ESG, compared to 18 per cent who favoured passive funds and 8 per cent who preferred hybrid instruments.

Reasons for preferring active strategies included more effective stewardship and engagement (47 per cent) and gaining a forward-looking view of company ESG profiles (47 per cent).

The survey determined that 32 per cent of investors are planning to increase their allocations to ESG bond funds as inflation eases, including 37 per cent of institutional investors.

Forty per cent of investors suggested that multi-thematic ESG funds are an effective means of diversifying risks related to their style biases and 35 per cent plan to increase allocations to more style-neutral ESG equity strategy over the next 12 months.

Meanwhile, 59 per cent of respondents believed that strategies which focus on top companies in sustainable sectors with high ESG ratings at the expense of companies seeking to transition to a sustainable future will miss out on potential investment opportunities.

According to 54 per cent of those surveyed, the consistency and reliability of data continues to pose a challenge for their adoption of ESG.

In light of this challenge, Capital Group noted that 39 per cent of institutional investors have created their own set of ESG definitions to ensure a consistent approach and 35 per cent have developed their own in-house approach to categorising ESG funds.

“This year’s responses suggest a growing appetite for multi-thematic funds as they can offer broader coverage of the ESG waterfront and help neutralise style bias volatility, and for ESG bond funds as inflation recedes and interest rates peak,” said Ms Ground.

“It is also encouraging to see signs that some longstanding barriers to ESG adoption, like data and definitions, are starting to diminish as the more investors know about ESG, the more they are finding proactive ways of dealing with its challenges.”

How global investors are implementing ESG

Equities are still the most popular asset class for implementing ESG, according to a new study, as allocations to ESG bonds are tipped to rise in the future.

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Jon Bragg

Jon Bragg

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.

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