A new study by Willis Towers Watson’s Thinking Ahead institute is highlighting the increasingly significant role large asset managers have in contributing to the well-being of humanity via sustainable investing practices.
The institute argues that these investors, many of which are institutions, “have no choice but to take seriously their financial stakes and responsibilities and lead from the front.”
“The major investment markets failed to make progress in 2018, but these funds in many cases were able to avoid losing ground against their longer-term targets by sensible diversification, in particular to private markets,” said Roger Urwin, global head of content at the Thinking Ahead Institute.
Institutional investors face pressure from the public to formulate sustainable investment strategies and, in many cases, divest from corporations and assets that perpetuate a “harmful” effect on our society. One such example is consistent pressure on the California Public Employees’ Retirement System (CalPERS) from organizations like Fossil Free California to divest from assets associated with coal and thermal energy. Meanwhile, the $68 billion United Nations pension fund recently announced its portfolio will be carbon-free by 2020.
The study highlighted the tight amalgamation of capital at the top of the asset manager pyramid and noted that the largest 100 asset owners constitute 35% of all global asset owner capital. The five largest funds in the world, in order, are the Government Pension Investment Fund (Japan), Government Pension Fund of Norway, Pension Fund Corporation of China, Abu Dhabi Investment Authority, and the Kuwait Investment Authority.
The institute also says that asset owners are facing lower expected returns, and their future success is contingent on adapting to sustainable investment strategies. Large asset owners have been taking note of this particular concern, such as the $207.4 billion New York State Common Retirement Fund, which received a report from a group tasked by Gov. Andrew Cuomo asserting that the institution must have 100% sustainable investments by 2030.
A study recently published by asset manager Schroders founds that the volume of cynics of the sustainable investment industry have fallen by nearly 50% in just three years. Despite the sharp rise in believers, however, not everyone is convinced, as nearly one-fifth of investors (19%) said they do not invest in sustainable investment funds.
“Sustainability has now become an unavoidable issue and talk on sustainability is becoming action,” Bob Collie, head of research at the Thinking Ahead Institute, said in a previous statement related to a sustainability-focused study.
Sustainable Investment Skeptics are Becoming Believers