City A.M., Michiel Willems, Saturday 2 January 2021 11:55 am
The global health and economic challenges of 2020 have not slowed investor demand for sustainable investing, a new BlackRock survey has found.
In fact, investors plan to double their allocations to sustainable products over the next five years, and 20 per cent said that the pandemic would actually accelerate their sustainable investing allocations, according to the investment management giant.
The survey gathered insights from 425 investors in 27 countries with nearly $25trn in assets under management. This included dozens of funds, asset managers and wealth managers in the City and Canary Wharf.
BlackRock’s researchers found that survey respondents plan to double their environmental, social and governance assets under management by 2025, with growth in sustainable assets being most pronounced in the UK and Europe.
“The tectonic shift we identified [in 2020] has really taken hold, as the convergence of political and regulatory pressures, technological advancements and client preferences have pushed sustainability into the mainstream of investing,” explained Mark McCombe, chief client officer at BlackRock.
ESG integration
According to McCombe, a former CEO of HSBC Global Asset Management in Canary Wharf, the majority of survey respondents believe that sustainability is fundamental to investment processes and outcomes, and 75% now use or would consider using an integrated approach to account for environmental, social and governance risks in their portfolios.
An integrated approach looks at ESG criteria across all holdings and to inform future investment decisions through a holistic sustainability lens, McCombe added, who is also a former CEO of HSBC in Hong Kong.
Though integration ranks highest, more targeted sustainable investment approaches such as thematic and impact solutions were also favorites of clients in EMEA, with 56 per cent and 52 per cent of respondents seeking these strategies, respectively.
Regional differences
BlackRock found that global demand for sustainability is driven regionally by different regulatory environments, public perceptions, board and management oversight and awareness of performance benefits.
In EMEA, the top reason, for 51 per cent of respondents, for adopting sustainable strategies was because it is “the right thing to do,” while just 37 per cent of respondents in the region said “mitigating investment risk” was a key consideration.
In the Americas, mitigating risk is the second highest driver of adoption (49 per cent), followed by “better risk-adjusted performance” and “mandate from board or management”, both at 45 per cent.
“While all recognize the primacy of climate risk, there are different levels of focus on issues like human rights, and diversity and inclusion,” said McCombe, who was recognised in the Queen’s New Year honours list in 2006 with an OBE.
“Critically, clients’ reasons for investing sustainably shows significant regional variance. For many European investors, they see the benefits of sustainability through the lens of societal impact. In the US, investors are more focused on risk management and investment performance,” he added.
Environmental risks
One area where respondents in all regions responding to the survey overwhelmingly agree is that 88 per cent have placed climate-related risks at the top of their portfolio concerns to date.
Going forward, while climate is expected to remain the leading concern, a growing number of the BlackRock survey respondents, namely 58 per cent, said that concerns over social issues such as diversity and inclusion, and fair labor practices are expected to rise the most in the next three to five years.
The rise of ESG criteria in investing is driven by a host of reasons, not least of which is greater company-level disclosures bringing more information to the public and other advances in data analytics to understand how ESG issues are material to investing.
Data quality concerns
More than half (53 per cent) of global respondents to the BlackRock survey cited concerns about “poor quality or availability of ESG data and analytics” as their biggest barrier to adopting sustainable investing, higher than any other barrier that was tested.
