Asset owners engage more with advocacy groups as concerns broaden

The concerns of asset owners are broadening from strictly net zero challenges to wider environmental issues, such as biodiversity, as well as social and governance factors such as human rights and a living wage, according to new research.

Moreover, asset owners are becoming more actively engaged with climate advocacy groups such as the Climate Action 100+, Principles for Responsible Investment and the Council for Institutional Investors, a survey by Morningstar found.

A managing director of the investment team for an $18.5 billion North American pension fund said: “There is going to be significant capital shifted to solve climate change and climate issues over the next 10 years, and as investors shouldn’t we be getting our portfolios in the way of those asset flows, capitalizing on those flows and avoiding those risks. Those are the kind of conversations that are happening today and need to be happening today.”

Asset owners also acknowledge that, even though ESG data and analysis continue to improve, they are still looking for better data and tools for use in decision making. 

Asset owners further agreed that better internal portfolio tools and external metrics would help them more effectively deal with rapidly increasing regulatory reporting demands.

A portfolio manager for a $20 billion Australia-based superannuation fund said: “I’m less concerned than I was five years ago about the volume of products. I’m probably more concerned about the quality of those products."

He added: "Most of the ESG tools are very equity-heavy; it is really hard to have a portfolio-wide view, or to have even an asset class view of any kind of ESG risks, opportunities or broader themes beyond equity.”

A conclusion from the report was that climate was clearly 'king' when it came to ESG considerations, but that the dialogue, scope and investment approach around climate was deepening as asset owners become more sophisticated and nuanced.

Earlier this year, three UK Local Government Pension Scheme pools joined a Net Zero Engagement Initiative (NZEI) to scale-up and accelerate climate-related corporate engagement.