Confidence In ESG Data Grows Among Asset Owners

FTSE Russell, the global index provider, has published the results of its annual global asset owner survey1 analysing how SI is perceived, considered and used by asset owners across the world.

SI implementation and evaluation is directionally down globally (falling from 80 per cent in 2023 to 74 per cent in 2024). There is a variance between small and large asset owners with SI implementation being higher for larger asset owners (86 per cent), but smaller asset owners (63 per cent) are seeing a downward trend.

Growing confidence in SI data

Concerns about the availability of ESG data and the use of estimated data has fallen from being the most significant barrier to adopting SI to sixth this year (50 per cent in 2023 to 22 per cent in 2024). Historically, concerns about the availability of ESG data was ranked the number one concern for asset owners in 2022 and 20232. The lack of standardisation in ESG data, scores and ratings has dipped from the second to the eighth most important barrier (37 per cent in 2023 to 20 per cent in 2024).

Barriers to increased SI adoption among asset owners have shifted to resources, methodology, and strategies. Almost two in five (39 per cent) asset owners state that concerns about SI methodology are the biggest barrier to increased adoption across all asset classes, a rise from 18 per cent in 2023. Furthermore, a quarter (25 per cent) of asset owners state that questions about how to determine the best strategy or combintion of strategies for their portfolio is a key barrier to SI adoption, rising from eight per cent in 2023.

Lack of trust in data quality (38 per cent, compared to 58 per cent in 2023) is no longer the top challenging factor for asset owners to meet regulatory requirements; the challenge to align portfolios in accordance with SI/climate guidance has risen to the top instead (51 per cent).

Stephanie Maier, Head of Sustainable at FTSE Russell, comments: “Sustainable investment remains a major focus area for asset owners globally while contending with significant regulation and challenging market conditions. The top challenge for asset owners in now focused on the implementation and portfolio alignment with sustainable and climate objectives. As an index provider, we play a crucial role in supporting our clients with solutions, data and insights to address this challenge.”

Fiona Bassett, CEO at FTSE Russell, comments: “As confidence in available SI data grows, the types of strategies asset owners are choosing are evolving. There has been a meaningful and sustained shift towards passive SI strategies, which are now directionally overtaking active ones for the first time. As our clients become increasingly more comfortable with SI data, we expect the shift of strategies from active towards passive to continue to grow.”

Passive overtakes active

SI is still being implemented with a hybrid approach, however the increasing demand for passive instruments has directionally overtaken active (66 per cent passive vs 61 per cent active).

While active still holds the larger AUM for global SI bond & equity ETFs & mutual funds (58% to 42%), directionally the fund flows are stronger into passive ($65bn inflows in the 12 months to June 2024) than active ($26bn outflows in the 12 months to June 2024)3.

This year’s data shows a trend of asset owners taking investment decisions back in house with the use of external investment managers having dropped significantly over three years (46 per cent in 2022, 31 per cent in 2023, falling to 24 per cent in 2024).

Changing views on SI regulation

• 34 per cent have changed fund name and description by removing ESG/SI terminology to comply with regulatory requirements
• 28 per cent have changed fund compositions to comply with regulatory requirements
• 10 per cent felt SI/ESG regulation did not help them meet their SI goals in 2024, compared to 25 per cent in 2023
• 51 per cent feel SI regulation helps remove barriers to SI adoption – this has increased from 40 per cent in 2023.
• 52 per cent state regulations relating to sustainable or climate benchmarks is the most helpful regulatory development for investors. This is followed by the code of conduct for ESG data and ratings providers (51 per cent).

Rise in biodiversity

• 21 per cent have already started incorporating assessments of the risks/impacts associated with natural capital/biodiversity into investment strategies. Additionally, this theme is on the agenda for asset owners in EMEA (44 per cent) and Asia Pacific (39 per cent) in the next year.
• 52 per cent who said biodiversity / natural capital was a priority for their organisation are currently directly investing in or adjusting investment weightings based on biodiversity/natural capital.

To read the full report, please visit the FTSE Russell website.

Source: FTSE Russell