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Net zero takes centre stage for global asset owners

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Asset owners from around the world have detailed how ESG issues, such as carbon emissions, are weighing into their investment decision making.

Environmental, social and governance (ESG) factors have become more material for many global asset owners over the past year, according to a survey by Morningstar.

The research house’s Voice of the Asset Owner Survey found that environmental issues, such as net zero emissions, are front of mind for the 500 asset owners surveyed.

Fifty-two per cent of respondents indicated that environmental factors have become more material to their investment decision making during the past year, including 19 per cent who said that these factors have become much more material.

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Meanwhile, only 22 per cent of the global asset owners reported that environmental factors have become less or much less material over the period.

Asked which environmental factor they consider to be most material, 52 per cent of respondents pointed to net zero emissions. This was followed by energy management (40 per cent) and sustainable food and agriculture (38 per cent).

Given the urgency of tackling climate change, it is not surprising that asset owners view the transition to net zero emissions as most material to their investment decision making,” commented Thomas Kuh, head of ESG Strategy at Morningstar Indexes.

“This survey reinforces with precision what we are hearing anecdotally from asset owners.”

Forty-three per cent of respondents said that governance factors have become more material in the past year. Top governance issues include risk management (41 per cent), business ethics (40 per cent) and the legal and regulatory environment (40 per cent).

Social factors are seen as more material by 38 per cent of the asset owners. Diversity and inclusion (57 per cent) and customer privacy and data security (46 per cent) are the social issues considered most material to their investment decisions.

Overall, 67 per cent of respondents said that ESG has become more or much more material in the past five years. Eighteen per cent said that there has been no change and 15 per cent said that ESG has become less or much less material.

“Asset owners are incredibly committed to making progress toward net zero,” said Arnold Gast, ESG research director at Sustainalytics.

“We find that our asset owner clients are constantly asking us for better data, research and engagement services to help reach their climate-related goals.”

A recent survey by Russell Investments found that the proportion of asset managers who claim that ESG factors do not drive their investment decisions has fallen to just 7 per cent.

Kris Tomasovic Nelson, senior director, head of ESG investment management at Russell Investments, said that this “striking” finding appeared to reflect a deepening recognition that ESG issues, including climate risk and labour relations, are financially material issues.

“As the industry continues to focus on responsible investing practices, active managers from all major asset classes are increasingly incorporating ESG considerations into their investment processes and hiring for ESG-related roles,” she said.

“Climate risk is at the forefront of investors’ concerns and we expect ESG to become further rooted in the investment landscape.”

Net zero takes centre stage for global asset owners

Asset owners from around the world have detailed how ESG issues, such as carbon emissions, are weighing into their investment decision making.

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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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