In our 2019 Real Asset Study, we spoke to 500 investment decision-makers across Europe, representing over €600 billion in assets under management. One undeniable trend highlighted in the study is the growing influence of environmental, social and governance (ESG) factors.
Overall, ESG issues have soared in importance in investors' minds over the last 12 months, with nine in ten of those polled considering ESG to be important in investment decision-making. Of this nine, 40 per cent of insurers and 42 per cent of pension funds consider a ‘favourable ESG impact' of real assets to be integral to their investment decision making, with 53 per cent and 47 per cent respectively citing ESG as ‘important but not key'. Just one in ten claim ESG is not important.
More than 40 per cent of respondents consider a favourable ESG impact to be an integral driver when investing in real assets, while over a third still consider it a challenge to understand more about ESG investment initiatives in the asset class.
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For insurers (54 per cent) and pension funds (57 per cent), the ‘ability to quantify ESG ratings' is an area respondents particularly look for when considering the ESG aspects of investments. For Nordic insurers (67 per cent) and pension funds (64 per cent), there is a much higher focus on ‘integration of ESG into the investment process'- 14 and 13 percentage points more than Europe overall, respectively.
Insurers are also more likely (50 per cent) than pension funds (41 per cent) to consider the ‘transparency of asset managers' ESG investment approach'.
‘Social infrastructure' is the most important socially-responsible investment to include in insurance (60 per cent) and pension fund (57 per cent) portfolios. Three-quarters (73 per cent) of insurers in Southern Europe think ‘energy-efficient real estate' is particularly important, while 52 per cent of Nordics look to ‘renewables', 8 percentage points higher than Europe overall, and 15 percentage points more than Western European insurers.
There is an argument that integrating ESG into portfolios is more straightforward in the real assets world than it is for public assets like bonds and equities. As ultimate asset owners, investors are not far removed from other key stakeholders, and should therefore be able to exert more influence over decision-making. In the face of growing ESG awareness, this is undoubtedly good news.
You can download the full report Real Asset Study 2019, In search of resilience in an uncertain world, in PDF format here.