Sovereign wealth and investment funds are increasingly adopting ESG policies that encourage institutional investors as they work toward their own sustainability goals and push for greater transparency all around.
The COVID-19 pandemic is part of the impetus for more attention on ESG from sovereign wealth funds, along with a global consensus on addressing climate change and other issues for financial as well as more virtuous goals.
"There has been rapid uptake on ways to approach climate change ... and we have generally seen an improvement in transparency and governance" on other ESG issues, said Victoria Barbary, director of strategy and communications for the London- based International Forum of Sovereign Wealth Funds, which tracks roughly 60 funds.
There has also been "a push from outside," she said. With sovereign wealth funds seen as representatives of their governments, "they have become more mainstream, and there is a better understanding of what they can do" on the ESG front, particularly as the energy transition becomes a more pressing need, and pressure mounts for all types of investors to align with the goals of the Paris Agreement on climate change, Ms. Barbary said.
"There's been a real change in terms of thinking about risks and opportunities," Ms. Barbary said.
Invesco questioned 139 chief investment officers, heads of asset classes and senior portfolio strategists from 81 sovereign wealth funds and 58 central banks, altogether responsible for €22.6 trillion ($24.3 trillion) in assets. Large public pension funds were included "because they are all long-term investors," said Rod Ringrow, head of official institutions at Invesco in London.
Invesco's study found regional variations in ESG-policy adoption, with 77% of Western sovereign wealth funds and central banks having an ESG policy, followed by Asia at 68%, the Middle East at 55% and emerging markets at 30%.