Most asset owners increasingly consider ESG material to their investment policy, according to a survey released Oct. 4 by Morningstar Indexes and Sustainalytics.
The Voice of the Asset Owner Survey asked 500 asset owners in 11 countries with combined assets of approximately $10.7 trillion. Respondents included pension funds, insurance general accounts, outsourced CIOs and family offices, with 60% managing more than $1 billion.
For 67% of them, ESG has become more material to investment policy in the past five years, particularly when it comes to the environment and net-zero emissions. That cohort reported increasing their allocation to environmental, social and governance strategies, despite implementation challenges.
Those challenges include market data, the market environment and regulation, respondents said.
The leading ESG implementation issue for survey respondents was the impact on returns, with 38% reporting that their sustainable investment strategies had a challenging year in 2022 amid the strong performance of the carbon-intensive energy and utilities sectors and the downturn of more ESG-friendly technology stocks.
ESG regulation as an implementation challenge rose 10 percentage points from the 2022 survey, with 30% citing it.
Another rise was in the percentage of asset owners managing total assets with ESG considerations, which rose to 34% from 30% last year.
Thomas Kuh, head of ESG strategy for Morningstar Indexes, said the survey confirms "that institutional investors remain highly committed to integrating ESG factors into their global investments," even while they are challenged by a lack of regulatory clarity and the need for better data.
"The data is getting better all the time. A lot of the improvements I will certainly credit to the asset owners. The challenge here really reflects the ambitions of sustainable investors, and also the urgency," Kuh said in an interview.
The 67% considering ESG material to investment policy "is a strong underpinning of their sense of fiduciary duty," he said.