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Voice of the asset owner survey on ESG

Despite ESG considerations widely acknowledged as material , integration into investment process is work in progress
Author : Morningstar

As stewards of capital , institutional asset owners ( AOs ) play an incredibly important role in the global market ecosystem . As fiduciaries , AOs oversee some of the world ’ s largest pools of invested assets .

To better understand the motivations , challenges and attitudes of AOs in the current environment , Morningstar , through its Indexes and Sustainalytics teams and with assistance from Collie ESG , has embarked on a global multi-phase survey .
The survey findings provide an interesting lens into the evolving role of AOs and the substantial and growing influence ESG and sustainable considerations have had on the global market ecosystem . They present a global group of AOs who are diverse in nature yet unified in the growing pressure faced from stakeholders and the rising urgency to act amid complex global challenges like climate change , inequality and accelerated biodiversity losses .
Phase one – qualitative analysis
Prior to a quantitative survey , that was completed in August , Morningstar conducted a broader quantitative analysis leading to a number of interesting points that warranted further investigation and validation : 1 . It is material AOs resoundingly understand that ESG considerations are material to the investment process . 2 . It is messy and evolving While AOs agreed that ESG considerations are important , they also expressed the view that ESG addresses complicated and multifaceted issues . 3 . ESG data , indices and ratings – good but need to get better ESG investing has called forth an industry that provides specialised data and analysis necessary for the integration of ESG factors into the investment process .
the full qualitative analysis Phase two – quantitative analysis
During the second phase of the survey , Morningstar drilled down deeper into these key areas through a quantitative survey of 500 individuals working at AOs spanning the insurance , OCIO , family office , sovereign wealth , pension , endowment , foundation and charitable sectors across 11 countries ( 100 from North America , 200 each from Europe and Asia-Pacific ). The findings added more depth and nuance to the analysis while staying largely consistent with the qualitative findings :
ESG factors are widely acknowledged to be material among asset owners . But despite their materiality , ESG considerations are still not applied across all assets . A vast majority ( 85 %) of respondents believe that ESG factors are either “ very ” ( 48 %) or “ fairly ” ( 37 %) material ( see Chart 1 ). This pattern held not only at the total portfolio level , but for each asset class queried : listed equity , fixed income , alternatives and real estate . Most respondents ( 70 %) feel that ESG factors have become more material in the past five years . This is testimony to the dynamic nature of materiality and the success of investors in raising ESG factors to materiality .
Asset owners have a diverse range of philosophies and approaches to the implementation of their ESG programs . Respondents were asked to characterise their organisations ’ approach to ESG . A majority ( 59 %) indicated that ESG considerations were taken into account only to the extent they were deemed to be financially relevant . The remaining 41 % saw ESG considerations as being valid objectives in their own right , with most doing so only to the extent it did not require any financial compromise . Just 11 % of respondents were willing to sacrifice some financial return in order to pursue ESG objectives , presumably among more mission-driven asset owners . The range of responses to this question speaks to how fiduciary duties vary by types of asset owners and jurisdiction .
There was no single dominant motivation behind the adoption of ESG . Influential factors that were cited ranged from senior management to external pressure to regulation to ethical considerations . Barriers to the pursuit of an ESG strategy also varied , with the potential impact on returns the most cited barrier ( 38 %).
The role of regulation is , on balance , seen as a positive one . Greenwashing is viewed as a particular challenge for regulators to address . ESG regulation is welcomed by many asset owners , with 59 % regarding it as either a “ slight ” or “ major ” help , with 24 % seeing regulation as a “ slight ” or “ major ” hindrance . Those who
22 ESG Unlocked : Sustainable Revolution In Full Swing October 2022