Focus on ESG intensifies as real asset investors seek returns, reveals new Macquarie Infrastructure and Real Assets report

• 91 per cent of real asset investors expect to increase their focus on ESG in the next five years, however, a lack of in-house expertise poses a barrier to its full integration into investment frameworks.
• The increasing focus on ESG is being partly driven by returns, with 78 per cent of investors acknowledging the positive link between ESG and investment performance.
• Findings based on a survey of 150 real asset investors with $US20 trillion of assets under management.

A new report produced by Macquarie Infrastructure and Real Assets (“MIRA”) has found that more than 90 per cent of real asset investors expect to increase their focus on sustainability over the next five years, seeking enhanced returns and better alignment with community expectations. However, an emerging Environmental, Social and Governance (“ESG”) skills shortage poses a barrier to the full integration of sustainability into investment frameworks.

The findings are based on a survey of 150 institutional investors with combined assets under management of approximately $US20 trillion. The report finds that the focus on sustainability within the industry is intensifying, with 91 per cent of those surveyed planning to increase their focus on ESG considerations over the next five years. This compares to the previous five years, in which only 58 per cent increased their focus on ESG.

The report also reveals that the move towards sustainable investing is being at least partly driven by the sector’s search for enhanced returns, with 78 per cent of respondents agreeing that good sustainability strategies improve investment performance. Investors are expected to build upon “exclusion-based” ESG investment models, taking a more deliberate approach in the coming years as they chase higher quality and less volatile earnings.

Phil Peters, Head of Macquarie Asset Management’s Client Solutions Group, said; “Investors in the real asset sector have reached an inflexion point, with a growing consensus agreeing that sustainability strategies can be pursued whilst delivering value for investors and driving positive change in communities. To harness this exciting opportunity, our industry needs to bridge the ESG skills gap and significantly improve measurement and reporting tools.”

Despite the growing consensus that proactive ESG strategies have the potential to create better managed companies and enhanced investor returns, the survey reveals that the largest barrier to making positive ESG allocations is an absence of in-house expertise. Of those surveyed, only 24 per cent from the Americas and 21 per cent from Asia had a dedicated ESG function. This compares to 72 per cent from Europe, the Middle East and Africa and 71 per cent from Australia.

The ESG skills gap across markets revealed by the report is a significant reason why only 23 per cent of investors currently quantify the benefits of their managers’ efforts and performance on sustainability. This skills gap, combined with the quality of performance information and measurement tools, will need to be improved if the sector is to fully embrace sustainability in investment decision making and asset management processes.

Download the full report.