Survey: Institutional investors rank climate change the priority ESG issue but climate risk integration is lagging

A new survey by Macquarie Asset Management affirms that climate change is considered the priority ESG issue for institutional investors, but most investors face challenges integrating the consideration of climate risks into their investment portfolios.  

Macquarie Asset Management surveyed 180 global institutional real assets investors, including asset managers, banks, consultants and investment advisors, foundations and endowments, insurance companies, and pension funds, who combined represent more than $US21 trillion of assets under management.

While more than half of responding investors selected climate change as their primary ESG concern, only 47 per cent currently track some or all of their portfolio emissions, and 46 per cent generally do not address physical and transition climate risks in their investment portfolios. Only 35 per cent of responding investors have committed to align their investment portfolios with net zero by 2050. Responding investors in EMEA and ANZ are currently further advanced on addressing climate risks in their portfolios, but there are indications that their counterparts in Asia and the Americas intend to accelerate ESG integration in the coming years through enhanced climate analysis and asset allocation.

Phil Peters, Head of Macquarie Asset Management’s Client Solutions Group, said: “While the results of the survey highlight the progress the institutional investment community has made in incorporating ESG factors into their investment approach, our survey also highlights the many challenges such investors continue to face in better understanding and managing how physical and transition risks posed by climate change may impact their investment portfolios. This is not a straightforward process given the diverse nature of most portfolios, which means asset owners and asset managers will play a key role in supporting investors as they seek to identify, assess, and manage both existing and emerging ESG risks and opportunities.”

Most institutional investors surveyed said they have evolved their approach to analysing and disclosing ESG outcomes and allocating capital to products that integrate sustainability practices in the past two years. The percentage of responding firms with a dedicated ESG function has risen from 47 per cent to 59 per cent since Macquarie Asset Management’s last survey in 2019. This focus on ESG is set to intensify, with 89 per cent of respondents indicating that they expect to increase their focus on ESG over the next two years and a large majority now sharing the view that a positive sustainability strategy can improve financial returns.

The rising importance of ESG is set to be increasingly influential in the asset allocation process, with 82 per cent of respondents indicating that they intend to increase commitments to investment strategies that integrate sustainability practices and 77 per cent expect to do the same for products or managers that target specific ESG outcomes. Investment strategies that incorporate the active divestment of assets or sectors with high ESG risks may also increase as sustainable investing moves from the edges of the investment community into the mainstream.

To explore these findings and other insights into the approach of institutional investors to ESG integration, please read the full report accessible here.