According to the latest survey by global index provider FTSE Russell, data challenges remain the largest barrier to the adoption of sustainable investing by asset owners.
In brief
- Sustainable investment (SI) is being driven by client demand across the globe, with 52% of asset owners citing this as the rationale for them implementing or considering SI – rising to 83% in EMEA.
- Following five years of steady growth, there has been a directional dip in the level of asset owners that are implementing and evaluating SI globally – falling from 88% in 2022 to 80%.
- Fewer asset owners are considering or have implemented allocations to active sustainable funds this year compared to 2022, but more are allocating to passive funds.
- Governance is now the number one priority for asset owners in all markets (54% in 2023 vs 33% in 2022)
- Data challenges are cited as biggest barrier to SI adoption.
The results of the latest annual survey by global index provider FTSE Russell show a slight dip in asset owners implementing and evaluating sustainable investment strategies from 88% to 80%.
For this year’s survey, FTSE Russell, part of the London Stock Exchange Group (LSEG), interviewed 350 asset owners from 31 countries across the world.
Commenting on the results, Sylvain Château, global head of product, sustainable finance & investment at LSEG, said: “While the long-term trend for sustainable investment reflects a very positive trajectory, macroeconomic and geopolitical factors have influenced respondents’ short-term sentiment.”
Client demand drives SI adoption
According to the survey, client demand continues to drive SI adoption. More than half (52%) of asset owners say that external demand from members and clients is the top reason why they are consistently implementing SI, increasing from 42% in 2022 and 45% in 2021. There are significant differences by region, with 83% of asset owners in EMEA saying that, compared to 29% in APAC.
Fixed income remains the top asset class for SI allocations globally, with 45% of asset owners having implemented or considered implementing SI in this space. But infrastructure continues to make gains, now at 44% globally, and rising from 42% in 2022 to 59% in 2023 in EMEA.
In just one year, investors’ strategies have changed significantly, with an 11-percentage point drop in active strategies and an impressive 15-percentage point increase in passive strategies. For the first time since this survey launched in 2018, as many asset owners are implementing passive strategies as active strategies (73%).
Changing priorities
Across asset owners globally, social themes have fallen as a priority, dropping from 73% in 2022 to 37% in 2023. In EMEA, this has dropped from 65% to 40%.
Governance has significantly risen across all regions, increasing notably from one in three (33%) in 2022 to 54% of asset owners globally in 2023. In EMEA, climate/carbon has increased even more significantly – rising from 36% in 2022, to 73% in 2023.
The most significant challenge to SI adoption is data, with half of asset owners calling out “concerns about availability of data and the use of estimated data”.
Among the most challenging factors facing asset owners to meet regulatory requirements is the lack of trust in data quality (58%), in EMEA this figure rises to 64%. Also, 42% of asset owners say data gaps with data essential for reporting form a challenging factor, this rises to nearly three in four (71%) asset owners in EMEA, compared to 34% in APAC.
Château concluded: “as sustainable investment strategies continue to mature and a focus on governance grows, the quest for the right data is likely to become an even greater priority for asset owners.
