Nearly two-thirds (63%) of investors prefer to use active funds to integrate ESG, with equities (80%) over bonds (58%) being the most popular asset classes globally to gain ESG exposure, according to a new study by Capital Group, one of the largest and most experienced investment companies in the world, with assets under management of $2.7 trillion1.
Capital Group’s ESG Global Study 2022 surveyed 1,130 global institutional and wholesale investors, including pension funds, family offices and insurance companies, as well as fund of funds, retail/private banks and financial advisors, located in 19 markets around the world. This is the second annual study that seeks to identify the key drivers behind how investors are integrating ESG and where the challenges lie.
“ESG adoption rates appear to be firmly embedded among professional investors globally, with a growing preference for active managers to make the critical investment decisions,” “This preference underscores the complexity of assessing ESG issues and that reducing them to a single ESG score cannot capture nuanced company evaluations. Investors are hence turning to active managers that can focus on deep proprietary research, robust monitoring systems and engagement to analyse companies. At Capital Group, we understand our fiduciary responsibility to consider all material factors in assessing the merits of an investment. ESG issues are critical factors in companies’ long-term outlooks and are therefore critical to our investment research and analysis.”Jessica Ground, Global Head of ESG, Capital Group
Regional variations persist but overall, the direction is one of increasing adoption
ESG adoption is now widespread, with the proportion of ESG users jumping to 89%, up from 84% in 2021. Europe boasts the highest percentage of ESG users (93%), while Asia-Pacific saw the largest increase in ESG users of any region over the past year (to 88% from 81% in 2021).
Among those surveyed globally, meeting client needs (27%) and making a positive impact (25%) are the most-cited motivations for adopting ESG. However, North American investors attach much more weight to meeting client needs (42%), while European investors are most driven by making a positive impact (28%). Among the three regions, Asia-Pacific investors cite improving performance (21%) as a primary reason for ESG adoption.
The survey also found that, compared to those in other regions, more Europeans consider ESG to be “central” to their investment approach (31% vs. 26% globally), while investors in North America have the least conviction in ESG, with less than one in five reporting that ESG is central to their investment approach (18%). Globally, almost four in 10 (39%) agree that a lack of product innovation is, in part, holding back greater ESG adoption, and ESG integration remains the most used implementation strategy (59%) by investors.
Environmental focus is overshadowing the S in ESG globally
- Half (50%) of the investors surveyed say a fund’s ability to meet the United Nations’ Sustainable Development Goals (SDGs) is an important consideration when making fund selections.
- Almost two-thirds (64%) of them believe that helping companies transition to a green future is key to solving the climate crisis.
- The E of ESG continues to dominate allocation preferences with an increase of share from 44% in 2021 to 47% in 2022.
- However, 41% of investors expressed concern that social issues, the S of ESG, are being overlooked in favour of climate issues.