The perception of ESG materiality is expanding across markets and factors, with asset owners pushing for more granular data and taking part in direct engagement on ESG topics with portfolio companies, according to Morningstar’s third annual Voice of the Asset Owner Survey.
The survey of 500 asset owners, with assets totalling approximately $18trn, revealed more than two-thirds of asset owners surveyed (67%) said ESG “has become more material in the past year”, with an average of 42% of AUM incorporating ESG factors, a four-percentage point increase since 2022.
While climate continues to be of great importance, ESG has moved beyond just ‘E’ in the eyes of asset owners, with significant materiality increases for Social and Governance. Climate transition readiness remains the most material Environmental factor, with labour practices and business ethics headlining material concerns for Social and Governance, respectively.
Thomas Kuh, head of ESG strategy at Morningstar Indexes, said: “Findings from our third annual Morningstar Voice of the Asset Owner Survey reaffirm many of our historical observations while uncovering areas of notable change for this important cohort. ESG materiality, still strong, is broadening and deepening while fiduciary duty continues to be driven by financial materiality.
“In addition, active ownership is alive and well, with direct engagement considered the most impactful tactic. Also, notably, while asset owners continue to use ESG data, ratings and indexes to implement their strategies, they increasingly recognise data as the most useful.”
Fiduciary duty insights
The story is different, however, when it comes to fiduciary duty, where financial considerations outweigh societal implications for asset owners. Some 72% of those surveyed considered single materiality relevant, compared to 59% for double materiality.
As AUM increases, the percentage selecting ‘very relevant’ for double materiality increases, with the report suggesting that larger asset owners view themselves more as universal owners who are more likely to consider the broader impact of their investments on the world.
Meanwhile, more than half of asset owners (53%) feel ESG considerations go hand-in-hand with the fulfillment of fiduciary obligations. And, when it comes to incorporating ESG considerations, nearly eight in 10 (78%) viewed active ownership as useful in driving the implementation of their ESG programs. The consensus was that proxy voting is the least effective method of active ownership, while direct engagement with companies ranked as the most important and effective tactic across all regions.
“As stewards of influential pools of global capital, asset owners take their fiduciary duties very seriously, and our survey findings underscore that,” added Paul Schutzman, head of institutional solutions for Morningstar.
“Notably, asset owners are asking for more granular ESG data to help support a broad range of ESG-related challenges.”
