- 31% of the largest institutional investors say climate
change will have the biggest impact on the way their organization
invests over the next three to five years
- Nearly a third are regularly using climate data to manage
risk
The global pandemic has highlighted both the importance of ESG
issues and is accelerating ESG integration by institutional
investors, according to the respondents of MSCI’s 2021 Global
Institutional Investor Survey1, a survey of 200 asset owner
institutions with assets totaling approximately $18 trillion.
The survey of sovereign wealth funds, insurers,
endowments/foundations, and pension funds found that over
three-quarters (77%) of investors increased ESG investments
“significantly” or “moderately” in response to COVID-19, with this
figure rising to 90% for the largest institutions (over $200
billion of assets).
“The combination of climate-related events, such as devastating
wildfires, floods and droughts, and a global pandemic have
accelerated the paradigm shift on ESG and climate change. Once an
issue for ‘green funds’ and side-pockets, ESG and Climate are now
firmly established as high priority issues,” said Baer Pettit,
President and Chief Operating Officer, MSCI. “2020 marked a
profound shift in the way institutions invest as many investors
have recognized that many companies with strong environmental,
social and governance practices outperformed during the
pandemic.”
The survey reveals that while U.S. investors in general have
been lukewarm about ESG in the past, with some high-profile
exceptions, 2020 dramatically shifted their views closer to those
of their international counterparts. Of U.S. respondents, 78% said
they said they would increase ESG investment either significantly
or moderately as a response to COVID-19, while the figure was 79%
and 68% in Asia-Pacific and EMEA, respectively.
When exploring future ESG investments, investors said they are
putting greater emphasis on the “S” in ESG, with over a third (36%)
wanting “Social” to comprise a larger proportion of the mix in
2021. This increases to 50% and 48% in the U.K. and U.S.
respectively, where respondents cited COVID-19 coinciding with a
reassessment of inequality in society as a driving factor.
Myriad challenges - climate change the major risk
While institutional investors are transforming their investment
processes to reflect today’s imperatives, they are facing a long
list of challenges over the medium- and long-term, with nuances
depending on size, location, and long-term investing goals.
Although the survey revealed global differences, for many
investors ESG challenges are a top concern. Almost a third (31%) of
institutional investors with over $200 billion of assets said
climate risk will have the greatest impact on the way the
organization invests over the next three to five years. This was
followed by disruptive technologies, such as artificial
intelligence for almost a fifth (19%) of investors, while 14%
believe increasing sophistication of ESG measurement will have the
greatest impact. On the other hand, smaller investors (less than
$25 billion of assets) said increasing regulations and market
volatility are the major trends that will impact their investments
over the next three to five years.
Climate data at the center of managing global risk
Due to the range of global challenges investors are facing, the
survey found that respondents perceived risk as more important than
traditional asset allocation, with investors of all sizes believing
the diversity of risk sources was more relevant than asset
allocation in achieving investment excellence.
With climate change cited as one of the major challenges, larger
investors are increasing their focus on accessing and monitoring
the latest climate data. Smaller institutions, however, are still
at an early stage of incorporating climate data in their investment
strategies. Some 50% of investors with more than $200 billion of
assets said they are regularly using climate data to manage risk,
compared with just 16% of those with less than $25 billion.
Investors with more than $200 billion of assets are also four times
as likely to regularly use climate data to identify investment
opportunities than those with less than $25 billion.
“Institutional investors face many challenges over the next five
years, which is magnified by the fact that these challenges are
interconnected. These interconnections add complexity and demand
urgency. The reality is, climate change links to a rapidly shifting
social context that in turn drives changes to investor demands, all
within a very dynamic regulatory environment. These trends are
amplified by technology innovation, adding significant cost and
time pressure. Quite simply, investing has never been a more
complex ecosystem,” Pettit concluded.
About MSCI
MSCI is a leading provider of critical decision support tools
and services for the global investment community. With over 50
years of expertise in research, data and technology, we power
better investment decisions by enabling clients to understand and
analyze key drivers of risk and return and confidently build more
effective portfolios. We create industry-leading research-enhanced
solutions that clients use to gain insight into and improve
transparency across the investment process. To learn more, please
visit www.msci.com.
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___________________________ 1 All quantitative data in the
Global Institutional Investor report was derived from a survey of
200 hundred executives at 200 separate asset owners across the
Americas, the Europe, Middle East and Africa (EMEA) and Asia
Pacific. The surveys were conducted by phone in September 2020.
Qualitative interviews and quotes came from a separate series of
phone interviews.
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