Over half of investors still consider environmental, social and governance ( ESG ) factors as important when it comes to portfolio asset allocation over the next 18 months, according to a recent study.
Environment is the top consideration, with two thirds ( 63% ) of investors considering it as an important factor, with governance ( 58% ) and social ( 51% ) following suit, finds global asset manager Fidelity International’s Professional Investor DNA Survey, which sought the opinions of over 120 institutional and intermediary distributors across Europe and Asia on investor appetite for incorporating environmental, social and governance ( ESG ) considerations into their portfolios.
Leading the pack are European and institutional investors putting more emphasis on ESG criteria in portfolio asset allocation.
Looking into sustainability themes, the study reveals further investor focus on environmental considerations, with decarbonization and the energy transition, alongside the preservation of natural capital, ranked in the top three themes in focus, likely driven by ongoing investor and policy maker commitments to reach net-zero carbon emission goals.
Corporate transparency is ranked in second place overall, underpinning investors desire for strong corporate governance.
Measuring impact biggest barrier
While ESG is seen as important in asset allocation, barriers still remain. Difficulty measuring impact is seen as the biggest barrier to further adoption of sustainable investing ( 68% in total ).
Meanwhile, 52% of investors, the study points out, mentioned changes to or inconsistent regulations as a key barrier. In Asia, 66% of investors felt the lack of supply of quality strategies/products was a barrier – compared with only 31% in Europe.
When asked about the most efficient way to create positive impact, the jury was out with investors citing a number of ways from impact investing ( 59% ), exclusionary screening ( 52% ), individual company engagement ( 44% ) and government policy and regulation ( 44% ), highlighting the multifactor approach needed when it comes to driving change.
“While ESG investing may now be viewed as a mainstream consideration in asset allocation, further progress is needed to break down implementation barriers,” says Jenn-Hui Tan, the asset manager’s chief sustainability officer. “This includes difficultly measuring impact, with observations pointing to difficulties sourcing and analysing good quality company data, and navigating regulation, where discrepancies remain across national, European and global regulatory frameworks.
“In Asia, our study finds that product availability continues to lag Europe. A key area of focus in Asia is transition finance, which is being supported by national level transition plans, as well as innovative frameworks and product structures. We expect this will trigger greater product innovation, which responds to growing client demand.”