The 2024 Voice of the Asset Owner Survey by Morningstar Indexes and Morningstar Sustainalytics provides a comprehensive view of global asset owners’ perspectives, highlighting emerging trends in Environmental, Social, and Governance (ESG) integration and its impact on investment strategies.
Overview of the Survey
The survey, now in its third year, involved 500 asset owners representing a combined asset under management (AUM) of $18 trillion. Participants included a diverse mix of institutional investors such as pension funds, insurance general accounts, family offices, sovereign wealth funds, and foundations across 11 countries. The survey was conducted in two phases: a qualitative phase featuring in-depth discussions with leading asset owners and a quantitative phase exploring the key themes identified.
Headline Findings
- Growing Importance of ESG: A staggering 67% of asset owners reported that ESG considerations have become more material over the past five years. The percentage of owners with over half of their assets reflecting ESG considerations has risen steadily from 29% in 2022 to 35% in 2024.
- Active Ownership on the Rise: Nearly 78% of global asset owners see active ownership, including direct company engagement and proxy voting, as crucial to implementing their ESG strategies.
- Climate Transition Readiness Tops the List: Climate transition readiness emerged as the most significant environmental factor, while labour practices and business ethics are the top concerns for social and governance issues, respectively.
- The Role of ESG Data: Asset owners increasingly view ESG data as the most critical component for effective ESG strategy implementation, emphasising the need for more accurate and standardised data.
- Geopolitical Factors: The Russia-Ukraine war was highlighted as the most material geopolitical concern for asset owners, with 64% considering it to have a significant impact on their investment decisions.
Key ESG Integration Trends
- Increased Allocation to ESG Strategies
The percentage of asset owners with more than half of their AUM dedicated to ESG strategies has continued to rise globally. While North America lags behind Europe and APAC, it is catching up. The trend is indicative of the broader acceptance of ESG principles as integral to long-term value creation and risk mitigation.
- Double Materiality in Focus
Single materiality (the impact of ESG issues on a company) and double materiality (including a company’s impact on society and the environment) are both seen as highly relevant by asset owners. Larger AUM institutions are more likely to support double materiality, reflecting their position as universal owners who consider the broader societal impact of their investments.
- Rising Challenges in Data and Reporting
While there have been improvements in ESG data, ratings, and indexes, asset owners still see room for further development. Better accuracy, more complete data, and standardisation remain top priorities. North American respondents are particularly vocal about the need for more precise data, while APAC respondents call for greater relevance in reporting.
AI Adoption and ESG Strategies
An interesting emerging trend is the optimism around artificial intelligence (AI) in ESG investing. The survey found that 82% of asset owners are hopeful that AI adoption will increase for tasks like data collection, ESG reporting, and portfolio construction. This reflects a growing recognition that AI could address some of the current limitations in ESG data and analysis.
The Influence of Geopolitical Issues
This year’s survey also incorporated insights into the impact of geopolitical concerns on investment decisions. The ongoing Russia-Ukraine conflict was deemed the most material, followed by trade disputes between China and the US/EU and the US presidential elections. Such concerns add complexity to ESG decision-making, as investors must balance ethical considerations with potential financial and geopolitical risks.
Closing
The 2024 Voice of the Asset Owner Survey underscores a significant shift in the mindset of institutional investors. ESG is no longer a niche consideration but a fundamental aspect of investment strategy, driven by regulatory changes, stakeholder expectations, and an evolving understanding of the relationship between ESG factors and long-term performance. For asset managers and investment firms, staying abreast of these trends is essential for aligning with the priorities of institutional clients and maintaining competitive relevance in an increasingly ESG-driven market.
