Climate increasingly a priority in asset owners’ investment strategies
Two thirds of asset owners believe that environmental considerations have become more important to their investment decisions in the last five years, outweighing concerns about the political discourse around the anti-ESG movement.
Climate has risen to the top of ESG-related challenges cited by asset owners in the past year, following by are market data, regulation, and the market environment, according to fresh data from Morningstar, seen by Net Zero Investor.
"Many asset owners are committed to initiatives that aim to be net zero by 2050 to reduce the impact of climate change. They are interested in climate transition strategies that track the reduction of real-world emissions, not simply reducing the exposure of their portfolios to carbon-intensive companies," the firm said in a new report.
Meanwhile, ESG regulation continues to present "a Jekyll and Hyde scenario" to asset owners, as Morningstar put it.
"On the one hand, asset owners expressed optimism about the benefits of ESG regulation. On the other hand, [there is] growing frustration," the firm noted, adding that it saw a double-digit percentage drop globally in those surveyed who said regulations and the related reporting requirements are a help versus a hindrance, with lack of clarity and rising costs the other primary pain points.
Asset owners acknowledged, however, that while ESG data and analysis continue to improve, they are still looking for more and better data, ratings, and benchmarks to help put investment policy into practice.
"Asset owners are looking for more accuracy, higher quality, and greater relevance for ESG data, ratings, and indexes. And they are looking to international standard-setting bodies, rating agencies, and government officials, among other stakeholders, to help bring about this change," the report read.
"Asset owners also believe artificial intelligence will have a major influence in the coming years in data collection and ESG analysis," it added.
Thomas Kuh, head of ESG Strategy for Morningstar Indexes, said "this last point about AI is important in my view. Despite the challenges cited by asset owners and concerns about global markets, many leading asset owners are forward-looking."
Kuh said he thinks of them as "the tip of the spear when it comes to anticipating emerging trends and incubating new investment practices."
He added: "Since they are responsible for stewarding large blocks of capital over long time horizons, asset owners need to take a dispassionate view, and their actions often set the stage for other investors. As clients, their input is invaluable to how we build our business and better serve them and their beneficiaries."