Asset owner interest in sustainable investing inches back to 2022 levels

In 2022, FTSE Russell surveyed asset owner attitudes towards sustainable investing. Some 86% said they were integrating sustainability into investment decisions. Unsurprisingly so. The years leading up to 2022 were the heyday of sustainable investing.

Then came the US-led backlash that ushered in an era of halted progress, palpable silence and investor caution surrounding labels.

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Some asset owners however, stood their ground. They expected managers to display credible climate credentials, and a handful voted publicly with their feet.

The backlash drew a backlash. This year, FTSE Russell repeated the survey. Levels of asset owner interest in sustainable investing are back to the levels seen in 2022.

Quiet resurgence

The sample includes pension funds, government-backed funds, endowments, insurers and family offices, with 402 asset owners from across the world responded to the survey.

84% said they were incorporating sustainability into investment decisions. Compared to 73% last year and 86% in 2022. This resurgence of interest has occurred in the face of the ESG backlash.

Lee Clements, director of applied sustainable investing research at FTSE Russell says this does not necessarily imply the backlash is permanent, he suggests. 

“The backlash did have an effect and contributed to a period in which progress across the industry effectively plateaued. However, what the findings suggest is that some of the more definitive claims that “ESG is dead” were an overreaction”, he says.

Clements reckons the resurgence has several roots. Data and methodologies have matured, and financial materiality of sustainability issues is more entrenched than it was a few years ago.

Crucially, real world events are shaping investor attitudes. “Geopolitical events have increased the focus on energy security and the energy transition, while record temperatures and extreme weather events have reinforced the relevance of physical climate risks”, Clements explains.

Sharpening the case

Clements’ interpretation of the data is that sustainable investment may be entering a more mature phase.

In 2020 and 2021, he says, investors zoomed in on product labels and corporate ambition. Now, the spotlight is on climate risk and return.

“Our findings suggest asset owners increasingly recognise climate risk as financially material. Some 86% of asset owners rated climate risk at seven or higher out of ten as an investment risk, up from 50% in 2023, with 25% rating it ten out of ten”, says Clements.

Financial materiality has taken centre stage. Nearly half the respondents pointed to portfolio returns as the key driver of their interest.

Next frontiers

The survey also paints a picture of where the next frontiers of sustainable investing might be.

Support of divesting high emission assets seems to have risen – a third of respondents are now in favour of it. Public equities remain a sustainable investing staple but private equity and infrastructure are more popular than they were last year. Passive strategies are picking up momentum too. Corporate disclosures remain a key headwind but investor attention towards costs has risen.

Clements says there is no one big next frontier. The evolution of sustainable investing is likely to be multifaceted.

Crucially, where interest has resurged capital is yet to flow. “Flows into sustainability-labelled products have been broadly flat in recent years, while our survey points to increased application of sustainable investment considerations among asset owners”, he points out.

While asset owner interest is back at 2022 levels, much has changed in the world of sustainable investing. In a more mature and refined phase, will capital follow interest? Only flows will tell.