This is the fourth year FTSE Russell has conducted and published the findings from our Smart Sustainability survey of global asset owners. With each passing year we learn more details about asset owners’ awareness, attitudes and behaviors related to the combination of Sustainable Investment (SI) and smart beta, and we continue to adapt the questionnaire to accommodate emerging trends and areas of investment interest for our clients and the global asset owner community.
Back in 2017, when we first asked questions to ascertain if asset owners were thinking of applying sustainability considerations to smart beta, we were surprised to find out the degree to which ESG factors were being considered an option to accompany smart beta indexation—in 2017 over 40% of asset owners using or evaluating smart beta globally said they were looking to apply ESG considerations to a smart beta strategy. Now, nearly 60% of asset owners using or evaluating smart beta are using or evaluating the two approaches together.
This trend is reflected in our engagement with clients where we work with a growing number of asset owners who wish to integrate sustainability parameters—especially climate risk—into smart beta indexes. We call this Smart Sustainability and apply a consistent factor methodology across both risk premia factors and sustainable investment parameters.
Covid-19 has certainly focused investors on sustainability factors and, in addition, the recent social unrest has sharpened our clients’ focus on factors around social and diversity policies and their impact on markets and company performance. It is important to note that the annual survey was fielded in the run-up to the global Covid-19 pandemic. Depending on an asset owner’s geography the questionnaire reflects the associated uncertainty and volatility differently, and should be interpreted as a pre-cursor to those changing markets and asset allocation decisions.
In these turbulent times, this year’s survey results are a striking reminder that sustainable investment is becoming an ever more important consideration for asset owners, and that while regional differences persist, the gaps are narrowing with particularly rapid growth in North America.
- In Europe, sustainable investment is now firmly part of the mainstream, with 81% of EMEA asset owners expressing interest in applying SI/ESG considerations to smart beta (up from 73% last year).
- In North America, the share of asset owners that indicated similar interest jumped to 42%, from just 17% last year.
- Large asset owners are leading the charge; globally 80% of asset owners with an AUM of $10 billion or higher are either evaluating or already implementing sustainability factors in their investment strategy.
- With COP26 and new EU regulations looming, climate risk tops the list of sustainability themes that asset owners focus on at 64%.
- Sustainable investment strategies continue to broaden, with a greater emphasis on more sophisticated approaches such as re-weighting based on SI and ESG factors (from 36% in 2019 to 55% in 2020) compared to more basic negative screening (64% in 2019 to 48% in 2020).