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Over 90% of global public investors now have specific environmental, social and governance (ESG) investment policies in place or are in the process of implementing them, reveals a new survey from independent think tank OMFIF and American financial services firm BNY Mellon. The research also found that investors have been especially motivated to adopt ESG criteria in light of the coronavirus pandemic, which has shown the superior risk-adjusted returns of sustainable investments.
According to a new OMFIF-BNY report, more than 90% of global public investors are now actively developing or already have ESG investment policies in place. The research, which is based on two surveys conducted over the past year, also found that the appetite for ESG precision is undergoing significant growth.
This trend has accelerated during the coronavirus pandemic, which has motivated investors to focus on their sustainability agenda as ESG investments outperform traditional investments.
The pandemic has exposed the vulnerability of financial systems to non-financial global risks. Sustainability will be a key guiding theme as policy moves from ‘life support’ to ‘designing the recovery’.Danae Kyriakopoulou, Chief Economist & Director of Research at OMFIF
Some of the preferred methods of measuring ESG criteria, 42% of global public investors are employing negative screening, 76% incorporate green bonds as their sustainable asset class, and 45% are aiming for significant increases in allocation to green bonds over the next one to two years.
Commenting on these results, Danae Kyriakopoulou, chief economist and director of research at OMFIF, said: “The pandemic has exposed the vulnerability of financial systems to non-financial global risks. Sustainability will be a key guiding theme as policy moves from ‘life support’ to ‘designing the recovery’.”
“Conversations we are having with clients suggest that the Covid-19 pandemic has sharpened their attention on the non-financial sources of risk,” added Frances Barney, head of global risk solutions at BNY Mellon Asset Services. “The pandemic is also shifting the focus of ESG risks to concerns such as biodiversity, environmental loss, health and social issues.”
This is perhaps most clearly exemplified by the survey finding that while 63% of sovereign and pension funds are currently struggling with formally measuring their non-financial impacts, 65% of them are actively working on developing these capabilities in the near future.
The pandemic is also shifting the focus of ESG risks to concerns such as biodiversity, environmental loss, health and social issues.Frances Barney, Head of Global Risk Solutions at BNY Mellon
The first of the two surveys reflected the responses of 50 central banks, 11 sovereign funds and 17 pension funds with combined assets under management of US$7.2 trillion, while the second reflects the responses of 27 sovereign and pension funds with combined assets under management of US$4.72 trillion.
While the appetite for adopting ESG criteria is significantly growing, the report highlights that many investors continue to face challenges in scaling-up their efforts, primarily due to insufficient data or complications in measuring the impact of non-financial performance of ESG strategies.
“Accessing and analysing complex data from multiple sources continues to be a barrier to investors in further integrating their ESG strategies,” explained Barney.
“Technology is the solution – with technologies being developed that enable investors to measure the non-financial performance of investments and help perform investment manager due diligence and inform conversations with stakeholders.”
Earlier in February, OMFIF and international audit and advisory firm Mazars released a study that showed that central banks are planning to make radical regulatory changes to tackle the climate crisis, a clear indication that the financial world is no longer able to avoid pricing in the costs of the biggest threat to our planet today.
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