Week of 7 December 2020
Sustainable investing is becoming part of the mainstream, but with a few caveats
“Sustainability is here to stay,” say most investors interviewed as part of BlackRock’s first-ever 2020 Global Sustainable Investment Survey. What does this mean in practice? Well, it’s a bit more complicated. Investors globally are committed to finding ways to integrate sustainability into their portfolios, and most of them anticipate this demand to increase – double in fact – in the next five years. Investors from Europe, the Middle East and Africa (EMEA) remain ahead of investors in Asia-Pacific (APAC) and the Americas in terms of their commitment to integrating sustainability in their portfolios. The environment and climate remain the focus of the vast majority of ESG approaches. Meanwhile, the biggest barrier to sustainable investing for more than half of respondents is the lack or poor quality of data and analytics on ESG.
The world’s largest asset manager, BlackRock, published the results of its first-ever 2020 Global Sustainable Investment Survey, which it undertook at the start of the year in line with a commitment by its Executive Committee to “make sustainability a key component of [its] investment approach.” BlackRock surveyed 425 of its clients, including corporate and public pension plans, sovereign wealth funds, insurers, asset managers, endowments, foundations, and global wealth managers, in 27 countries representing around US$25 trillion in assets under management.
The survey explored to extent to which sustainability considerations have been mainstreamed into traditional investment practices, plus challenges and opportunities to integrating an ESG lens to investing.
According to BlackRock, “Our findings were clear: investors recognize the importance of sustainable investing to risk-adjusted returns and are backing up this conviction with their asset allocation plans, though scale of adoption does vary by region.” What does this look like in practice? BlackRock identifies 6 key trends for sustainable investment:
- “Sustainability is here to stay.” 54% of all respondents “consider sustainable investing to be fundamental to investment processes and outcomes,” though this varies by region: Europe, the Middle East and Africa (EMEA) consider sustainability “the new normal,” while investors in Asia-Pacific and the Americas are still at “early stages in their sustainability journey.”
- “A shift in capital allocation.” Investors are looking to “double their sustainable assets under management in the next five years – rising from 18% of assets under management on average today to 37% on average by 2025.” Again, ambition is broken down by geography, with EMEA investors seeking to have sustainable investments make up almost half of their assets under management by 2025. Interestingly, only 3% of investors anticipate COVID-19 to cause delays in this transition.
- “The data challenge.” The biggest barrier to sustainable investing for more than half of respondents is the lack or poor quality of data and analytics on ESG. BlackRock found that this was “the biggest barrier to deeper or broader implementation of sustainable investing, higher than any other barrier that we tested.”
- “Climate is king.” 88% of investors consider environment to be the highest priority topic within ESG. BlackRock interprets this as a result of the urgency—and financial risk—posed by climate change. Investors also expect portfolio alignment with the UN Sustainable Development Goals and the goals of the Paris Agreement to increase.
- “A whole portfolio approach.” 75% of investors are currently or would consider integrating ESG into all of their investment decisions. 65% of investors are using or would consider applying exclusion screens to their portfolios.
- “Fixed income and alternatives set to grow.” Investors are interested in “increasing their exposure to sustainable fixed income and alternatives asset classes” in addition to equity allocations. As part of this shift, “indexing is set to play a more significant role in the future, particularly within EMEA, with growing focus on fixed income indexing.”