Global health and economic challenges this year have not slowed investor demand and outlook for sustainable investing, according to BlackRock’s Global Client Sustainable Investing Survey. In fact, investors plan to double their allocations to sustainable products over the next five years, and 20% said that the pandemic would actually accelerate their sustainable investing allocations.
“The tectonic shift we identified earlier this year 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,” said Mark McCombe, Chief Client Officer at BlackRock. “The results of our survey show this sustainable transition is occurring all around the world.”
The survey gathered insights from 425 investors in 27 countries, including corporate and public pension plans, asset managers, endowments, foundations, and global wealth managers with nearly US$25 trillion in assets under management (AUM).
The survey suggests this is the beginning of a sustained shift for at least the next five years, with survey respondents planning to double their Environmental, Social and Governance (ESG) assets under management (AUM) by 2025. While growth in sustainable assets is most pronounced in Europe, it is also growing in prominence in the Americas and Asia-Pacific as well.
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 (ESG) 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.
Though integration ranks highest, more targeted sustainable investment approaches such as thematic and impact solutions were also favorites of clients in EMEA, with 56% and 52% of respondents seeking these strategies, respectively.
Regional Differences to Adoption
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 (51%) respondents provided for adopting sustainable strategies was because it is “the right thing to do,” while just 37% 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%), followed by “better risk-adjusted performance” and “mandate from board or management” (both at 45%).
“Region by region, clients are prioritizing ESG issues and implementation differently. 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. “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.”
Environmental Risks are Clients’ Top Concern
One area where clients in all regions responding to the survey overwhelmingly agree is that 88% 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 survey respondents (58%) said that concerns over social issues such as diversity and inclusion, and fair labor practices are expected to rise the most in the next 3-5 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.
Concerns about Data Quality
There is no doubt that the quality and availability of data has significantly increased in the last decade, allowing investors to make more informed investment decisions as a result. Yet, there is considerable agreement among institutional investors that this is an area that requires further focus.
More than half (53%) of global respondents 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.
Update on BlackRock’s 2020 Sustainability Actions
“As we saw in this year’s survey, investors around the world are demanding continued focus from the industry on sustainability initiatives that will help them build better risk-adjusted portfolios for the future,” said McCombe.
In January, BlackRock detailed a series of steps to make sustainability a key component to the way it manages risk, constructs portfolios, designs products, and engages with companies.
A detailed update on BlackRock’s 2020 sustainability actions is available here. Highlights include:
- Integrating ESG
The firm delivered on its goal of having 100% of our approximately 5,600 active and advisory BlackRock strategies ESG integrated – covering US$2.7 trillion in assetsi.
- US$39 billion Allocated to Sustainable Strategies
BlackRock introduced 93 new sustainable solutions in 2020, helping clients allocate US$39 billioni to sustainable investment strategies, helping drive a 41% increase in sustainable AUM from December 31, 2019.
- Grew ESG Building Blocks in Portfolios to US$23 billion
Sustainable building blocks have grown exponentially in BlackRock global model portfolios, jumping from US$450 million in 2019 to US$23 billion in ESG AUM in 2020i.
- Exited Thermal Coal Production
All discretionary active portfolios have completely exited any investment in public companies with more than 25% of revenues from thermal coal production.
- New Climate Risk Tools
Aladdin Climate launched, setting a standard for assessing environmental risks across asset classes in investment portfolios.
- Vast Expansion of ESG data
BlackRock added 1,200 sustainability metrics to Aladdin and established data partnerships with Sustainalytics, Refinitiv and Rhodium to help clients better understand ESG and physical climate risks.
- Expanded Sustainability to New Markets and Strategies
BlackRock pioneered new sustainable strategies with the first dedicated ESG solution in Mexico and, in the US, the first index-based target-date ESG funds, and the first suite of single-ticker ESG asset allocation ETFs.
- Intensifying Engagement and Transparency
244 carbon-intensive companies risk voting action in 2021 absent significant progress on climate; increased transparency with more than 50 Vote Bulletins on high-profile votes and saw a 288% increase in SASB reportersii since our call for SASB and TCFD-aligned reporting.