• 64% of global asset owners report environmental factors as increasingly material in investment decisions.
• Climate change is the top environmental concern, influencing asset owners’ transition to net zero.
• Active ownership and high-quality ESG data are critical tools for advancing sustainability.

Climate Takes Priority

A growing number of asset owners, including pension funds, insurance accounts, and endowments, are prioritizing climate over social and governance issues in their investment decisions. According to Morningstar’s recent Voice of the Asset Owner Survey, 64% of respondents feel environmental factors have become more financially relevant over the past year, compared to 52% in 2023.

“Climate is the lead and that’s because the data that’s available is better,” noted a US corporate pension fund.

In particular, climate change tops the list of concerns, with 55% of respondents highlighting the transition to net zero emissions as a critical factor. This aligns with the urgency of tackling climate change and reflects its increasing materiality in the financial sector.

Fiduciary Duty and ESG Factors

Environmental, social, and governance (ESG) factors continue to gain traction in institutional investment strategies. The survey found that 80% of asset owners view ESG as having a neutral to positive impact on their fiduciary duties. As ESG factors, particularly environmental ones, become more material, they fall within the purview of fiduciary responsibilities.

Active Ownership and Market Engagement

Asset owners are leveraging their influence through active ownership to drive ESG policies. About 78% of asset owners believe that direct engagement with portfolio companies is the most effective tool for enacting change, followed by public policy engagement and collective initiatives like Climate Action 100+.

Proxy voting, while important, is considered the least influential method of influencing ESG outcomes.

Related Article: Morningstar Reports Mixed Support for ESG Proposals in 2024 Proxy Season as Governance Gains Momentum

Data: The Cornerstone of ESG Strategies

High-quality data is essential for implementing ESG strategies, with 43% of asset owners considering ESG data the most useful tool, compared to ratings (24%) and indexes (23%).

Despite improvements, asset owners are calling for greater accuracy, standardization, and relevance in ESG data. The message is clear: for sustainable investment to progress, continuous improvement in data reporting is critical.