(Bloomberg) -- For much of the past two years, the pushback against ESG-related strategies has been gaining momentum.
Just last week the US House of Representatives passed a package of bills targeting environmental, social, and governance investing in retirement accounts as Republicans rail against so-called liberal policies.
Given this backdrop, many may be surprised by the conclusions of a recent global survey conducted by Opinium Inc. for Morningstar Inc., which shows that about two-thirds of asset owners say ESG has become “more material” for their operations over the past five years.
Roughly 42% of the assets under management of those surveyed now include ESG factors in their investment decisions, up 4 percentage points since 2022, Morningstar said.
And despite GOP-led opposition to ESG in the US, 53% of those surveyed said sustainability considerations go hand-in-hand with the fulfillment of fiduciary obligations.
Morningstar’s third-annual global survey is based on interviews by Opinium with 500 asset owners from 11 countries spread across North America, Europe and the Asia-Pacific region. Together, the participants oversee more than $18 trillion of assets.
- Here is link to report.
While Europe is the major driver of interest in ESG, firms in North America said that 37% of their managed assets take ESG factors into account, holding steady from two years ago.
There’s currently a clear bifurcation in today’s market between asset owners who think long term and individual investors who may be more focused on the short term, said Thomas Kuh, head of ESG strategy at Morningstar Indexes, in an interview. The survey shows how sustainability-related topics are “strategically important and embedded in mainstream finance” for many institutional investors, sovereign funds and other asset owners, he said.
There’s “a stickiness of interest and understanding around ESG,” making it “material and an integral part of the fiduciary duty for many investors,” Kuh said.
In the report, Morningstar said the increased interest dovetails with the improved understanding of the linkage between ESG issues and company performance. Another factor is the increased action by regulators.
Climate transition readiness remains the most material environmental issue, with labor practices and business ethics topping the list of “material” social and governance concerns, according to the Morningstar survey.
Some investors are veering away from ESG because they question how the strategy impacts investment returns and because they’re concerned about the lack of standardized data.
Greenwashing also is perceived as a lingering problem by asset owners, particularly those in the UK and China, according to the survey. Greater transparency and stronger enforcement action are seen as the best solutions to avoid misleading labels or advertising.
Morningstar said its main conclusion from the survey is that while there are regional differences in priorities and challenges, “the overarching trend is a positive move towards more sustainable investing.”
©2024 Bloomberg L.P.