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.