Pandemic pushes firms to up allocations to social investments – research

The social factor within ESG will be of increasing importance to global pension funds over the next three years due to the COVID-19 pandemic, with passive allocations set to rise.

Research by DWS and CREATE-Research found that 66% of pension funds intend to increase allocations to the 'S' pillar through passive allocations over the coming years. Two-thirds (67%) said they will choose their passive managers based on a track record of achieving their clients' social agendas.

The research, which covered 142 pension funds representing €2.1 trillion ($2.55 trillion) in 17 jurisdictions, found COVID-19 was a key driver in 59% of respondents' heightened interest in social issues. Almost one-quarter (22%) said their 'S' pillar passive funds outperformed wider markets in the pandemic-induced market crash last March, and 36% are looking to manage difficult-to-model fat-tail risks by investing in social factor-related projects.

"Our 2021 survey shows how COVID-19 has exposed long-concealed failings of today's market economies, but also how the increasing prominence of the 'S' pillar of ESG can play a role in addressing those failings," Amin Rajan, CEO at CREATE-Research, said in a news release accompanying a report of the research.

The report is available for download on the CREATE-Research website.

Separate research published by money manager Nuveen found that 48% of U.K. respondents to an institutional investor survey believe the pandemic will be the greatest driver of changes to asset allocation and investment strategy over the next 12 months.

Further, 51% of U.K. respondents are planning a strategic shift to private markets from public markets this year.

"The unprecedented nature of 2020 offered us an extraordinary opportunity to assess the practices and attitudes of major institutional investors in managing both portfolios and day-to-day operations," Alex Prout, head of Nuveen global client relationships and head of distribution, Europe, said in a news release accompanying a report of the survey. "Perhaps unsurprisingly the pandemic was a strong driver shaping investment decisions for the year ahead, but additionally respondents in the U.K. point to alternatives and ESG as playing a significant role in their allocation for 2021."

Nuveen surveyed 700 global investors and consultants across North America, Europe and Asia-Pacific in October and November, of which 139 were based in the U.K. Respondents had at least $500 million in assets. The full study is available for download on the Nuveen website.