“The majority of survey respondents continue to see ESG investing as central to long-term value creation in this era of global warming and social inequality,” stated the tenth annual global survey report of pension plans, signalling a notable shift in investment strategies. Photo: Shutterstock

“The majority of survey respondents continue to see ESG investing as central to long-term value creation in this era of global warming and social inequality,” stated the tenth annual global survey report of pension plans, signalling a notable shift in investment strategies. Photo: Shutterstock

Driven by regulatory changes and more awareness of sustainability, 26% of pension funds have implemented ESG strategies and a further 55% are in the process of doing so, reflecting a new paradigm in risk management and ethical investment.

Environmental, social and governance investing played a crucial role in the world of pension funds, revealed by the tenth annual global survey conducted by Amundi and Create-Research.

Initially, ESG investing struggled with issues of transparency and data reliability, but it has matured significantly, noted the report. In 2022-2023, countries like China, Europe, India, Japan and North America introduced regulatory policies to enhance transparency and enable capital markets to accurately price in ESG risks and opportunities. This led to a fundamental change among pension investors, who transitioned from a focus on quantity to quality.

The 44-page ‘2023 ESG Evolution’ report, which surveyed 158 pension plans across Asia-Pacific, Europe and North America with a combined €1.91trn in assets under management, found that 26% of these plans had already implemented ESG strategies, with an additional 55% in the process. In terms of net-zero strategies, 18% were in place and 43% were being developed. 57% of respondents aimed to mitigate all ESG-related risks, while 53% were looking to enhance risk-adjusted returns from ESG opportunities.

Challenges and opportunities

Despite facing challenges like ill-timed sector bets during the 2022 bear market, which affected 63% of respondents, and the political backlash against ESG in the United States, which had an impact on 56%, the future of ESG investing looks promising. 61% believed that new regulatory progress on data disclosures would bolster ESG asset growth, while 59% expected recent policy initiatives to expedite the pricing in of ESG risks.

ESG investing outlook

Looking ahead, 53% of pension plans expected an increase in ESG investing in their active portfolios, with 49% predicting a rise in passive portfolios in the next three years. The most favoured themes were climate change (63%) and diversity and inclusion (64%).

Manager selection criteria

The criteria for selecting external asset managers became more stringent, noted the report. 67% of pension plans required asset managers to have a strong track record in delivering ESG goals, while 65% emphasised the importance of stewardship and proxy voting. Additionally, 58% demanded a value-for-money fee structure and 56% expected core ESG values to be embedded in their managers’ corporate culture.

Overall, there is a paradigm shift underway that is not merely a trend but a fundamental transformation in how long-term investments are approached within pension funds. ESG considerations are now an indispensable part of investment strategies, the report concluded.

Related articles