A new survey from Macquarie Asset Management indicates that the world’s institutional investors have become more convinced of the financial materiality of environmental, social and governance (ESG) considerations in their portfolio strategies. The Macquarie Asset Management 2021 Survey also revealed that more Asian investors have made commitments to reach net zero targets by 2050. 

The climate crisis was the top ESG issue among the 180 global institutional real assets investors surveyed, including asset managers, banks, consultants and investment advisors, foundations and endowments, insurance companies, and pension funds — who represent more than $21 trillion of assets under management (AUM) combined.

The survey also highlighted the fact that investors are still facing challenges in better understanding and managing how physical and transition risks posed by climate change may impact their investment portfolios.

Despite 55% of the survey respondents putting climate change as their priority, 65% have not yet made a commitment to the goals of the Paris Agreement — namely, to reach net zero targets by 2050. Investors in Australia & New Zealand (ANZ) and Asia are actually leading on this front, at 42% and 40% respectively, compared to the 20% of investors in the Americas.

“This is not a straightforward process, given the diverse nature of most portfolios, which means asset owners and asset managers will play a key role in supporting investors as they seek to identify, assess, and manage both existing and emerging ESG risks and opportunities,” said Phil Peters, head of Macquarie Asset Management’s client solutions group in a release.

BEHIND THE CURVE

Although Asia’s investors are among the leaders to have made a commitment to net-zero, the survey confirms the overall market perception that Asia and the Americas are still lagging behind Europe and ANZ in ESG integration.

Around 70% of ANZ and Europe’s investors have a dedicated ESG function compared to around 50% of investors in Asia and the Americas.

 
Source: MAM 2021 ESG Survey

When addressing physical and transition climate risk in their portfolios, the survey found that only 33% of Asia’s investors require climate disclosures, while those in ANZ and Europe reported 69% and 53% respectively.

Source: MAM 2021 ESG Survey

Chandra Eastwell, associate director at Macquarie Asset Management, said that although globally investors share many of the same priorities, there are regional differences that illustrate the differentiated and responsive nature of ESG investment.

“In the Americas for example, the Black Lives Matter movement has led to greater conversations with investors about diversity, equity, and inclusion. In Europe, gender equality has long been a focus, while human rights features more prominently for Asia-based investors,” she said.

CATCHING UP

Despite the lag, there are indications that ESG integration is set to accelerate in Asia and the Americas over the next two years, suggesting that these markets may be close to tipping points in terms of sustainable investment.

 
Source: MAM 2021 ESG Survey

77% of respondents in Asia expect to increase allocations to investment strategies or managers that target specific ESG outcomes, compared with about 81% in the Americas, 74% in ANZ, and 91% in Europe.

In addition, Asia-based investors are ramping up their climate analysis. While only 29% are currently tracking some greenhouse gas emissions, compared to 60% in Europe, 42% of Asian investors have said they intend to start doing so.