Asset owners are increasingly confident about the availability of data related to environmental, social and governance factors, according to a survey released Sept. 18 by FTSE Russell, a global index provider.
FTSE Russell’s Annual Asset Owners Sustainable Investment Survey found that concerns about the availability of ESG data — and the use of such data — is now considered the sixth-most significant barrier to adopting sustainable investment practices — dropping from being the No. 1 such concern in 2023.
The lack of standardization in ESG data, scores and ratings has plunged from being the second-biggest barrier to adopting sustainable investing to being the eighth most important barrier in 2024, the survey found.
However, challenges to adopting sustainable investing remain.
The top such challenge now, as cited by more than half of respondents (51%) in the survey, related to the difficulties of aligning their portfolio or index with sustainable investment or climate goals. “This may reflect the increasingly quantitative approaches investors are taking in measuring alignment with very specific climate targets and the challenges in measuring and achieving these,” the survey said.
In addition, nearly 2 in 5 of asset owners (39%) now say that concerns about sustainable investing methodology are the biggest barrier to increased adoption across all asset classes, a jump from 18% in 2023.
Also, 25% of asset owners said questions about how to determine the best strategy or combination of strategies for their portfolio is a key barrier to adopting sustainable investing, climbing from 8% in 2023.
Some 38% of asset owners do not trust ESG data quality — however, that figure has plummeted from 58% in 2023, which made it the top challenging factor for asset owners to meet regulatory requirements last year.
“Sustainable investment remains a major focus area for asset owners globally while contending with significant regulation and challenging market conditions,” said Stephanie Maier, global head of sustainability at FTSE Russell, in a news release issued in tandem with the survey. “The top challenge for asset owners in now focused on the implementation and portfolio alignment with sustainable and climate objectives.”
In addition, while SI is still being implemented with a hybrid approach, there is an increasing demand for passive instruments over active strategies.
For example, while active instruments still control 58% of the assets under management for global SI bond and equity ETFs and mutual funds, the fund flows are stronger into passive instruments — with $65 billion inflows in the 12 months ended June 30, while active saw $26 billion outflows over that period.
The survey also found that asset owners are relying less on external asset managers as a primary source of sustainable investing information — 24% in 2024, down from 31% in 2023. This scenario “may reflect increasing asset owner confidence and investment in their internal capabilities, having developed in-house teams and expertise, as well as a focus on cost efficiency,” the survey said.
Fiona Bassett, CEO at FTSE Russell, noted in the news release: “As confidence in available SI data grows, the types of strategies asset owners are choosing are evolving. There has been a meaningful and sustained shift towards passive SI strategies, which are now directionally overtaking active ones for the first time. As our clients become increasingly more comfortable with SI data, we expect the shift of strategies from active towards passive to continue to grow.”
With respect to the impact of sustainable investment regulation, 28% of asset owners have changed fund composition and more than one-third (34%) have changed naming conventions in response to regulatory requirements. With respect to the latter, these asset owners have removed ESG/SI terminology from their fund names.
The latest survey included the views of 303 asset owners across 15 countries. Some 42% of respondents have $10 billion or more in assets, 31% have $1 billion to less than $10 billion in assets, and the remainder have less than $1 billion in assets.
