Global index provider FTSE Russell has published the results of its annual global asset owner survey on sustainable investment, with key trends including a growing confidence in ESG data availability, the rise in biodiversity as an investment theme and passive overtaking active as the preferred instrument for sustainable investment.
Concerns about the availability of ESG data and the use of estimated data has fallen from being the most significant barrier to adopting sustainable investment to sixth this year (50% in 2023 to 22% in 2024). The lack of standardisation in ESG data, scores and ratings also dipped, from the second to the eighth most important barrier (37% to 20%).
The perceived barriers to sustainable investment adoption among asset owners have, instead, shifted to resources, methodology and strategies. Almost two in five (39%) asset owners stated concerns about methodology are the biggest barrier to increased adoption across all asset classes, a rise from 18% in 2023.
Meanwhile, a quarter of asset owners stated that questions about how to determine the best strategy or combination of strategies for their portfolio is a key barrier to sustainable investment adoption, rising from 8% in 2023.
Stephanie Maier, head of sustainable at FTSE Russell, commented: “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 is 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.”
Passive overtakes active, changing views on regulation and the rise in biodiversity
Elsewhere, the survey found although sustainable investment is still being implemented with a hybrid approach, the increasing demand for passive instruments has directionally overtaken active (66% passive versus 61% active).
While active still holds the larger AUM for global sustainable investment bond and equity ETFs and 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).
Additionally, 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% in 2022 to 24% in 2024).
Other highlights include changing views on regulation – with 52% of respondents stating regulations relating to sustainable or climate benchmarks are the most helpful regulatory development for investors – and a rise in focus on biodiversity, with 52% saying biodiversity and natural capital were a ‘priority’ for their organisation.
Fiona Bassett, CEO at FTSE Russell, added: “As confidence in available sustainable investment data grows, the types of strategies asset owners are choosing are evolving. There has been a meaningful and sustained shift towards passive strategies, which are now directionally overtaking active ones for the first time. As our clients become increasingly more comfortable with this data, we expect the shift of strategies from active towards passive to continue to grow.”
