• Asset owners’ confidence in ESG data has increased, reducing concerns from 50% to 22% in 2024.
• Passive investment strategies are now overtaking active ones, driven by growing trust in sustainable investment (SI) data.
• Aligning portfolios with climate goals is the top regulatory challenge for asset owners, surpassing concerns about data quality.

Growing Confidence in SI Data

Concerns about the availability and accuracy of ESG data have significantly declined, with fewer asset owners citing it as a barrier to sustainable investment (SI). In 2023, 50% of asset owners highlighted this issue, but that number has dropped to 22% in 2024. Similarly, concerns about the lack of standardization in ESG scores and ratings fell from 37% to 20%.

Stephanie Maier, Head of Sustainable at FTSE Russell, noted: “Sustainable investment remains a major focus area for asset owners globally while contending with significant regulation and challenging market conditions. The top challenge for asset owners is now focused on the implementation and portfolio alignment with sustainable and climate objectives.”

Shifting Barriers to SI Adoption

While ESG data concerns have decreased, asset owners now face new barriers. Nearly 39% of respondents pointed to challenges with SI methodologies, up from 18% in 2023. The complexity of selecting the right strategies for portfolio alignment has also risen, with 25% citing it as a key barrier, compared to just 8% last year.

Passive Investment on the Rise

A notable shift is taking place within SI strategies, with passive instruments overtaking active ones. In 2024, 66% of asset owners favored passive strategies, while active strategies fell to 61%. Although active strategies still control more assets under management (AUM), passive strategies have attracted significant inflows, reaching $65 billion over the past year, compared to outflows of $26 billion from active strategies.

Fiona Bassett, CEO at FTSE Russell, explained: “As confidence in available SI data grows, the types of strategies asset owners are choosing are evolving. There has been a meaningful and sustained shift towards passive SI strategies, which are now directionally overtaking active ones for the first time.”

Regulatory Challenges and Opportunities

Aligning portfolios with sustainable and climate objectives has emerged as the top regulatory challenge, cited by 51% of respondents, replacing previous concerns about data quality. Nonetheless, regulations continue to play a crucial role in facilitating SI adoption. Over half (52%) of asset owners stated that regulations related to sustainable benchmarks are the most helpful development for their investment decisions.

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Rise in Biodiversity Investment

The focus on biodiversity and natural capital is growing. About 21% of asset owners have already started incorporating biodiversity risks and impacts into their investment strategies, with more planning to follow suit in EMEA (44%) and Asia Pacific (39%) over the next year.

With SI strategies continuing to evolve, asset owners are taking more control over their investment decisions, with the use of external managers dropping to 24% in 2024, down from 46% in 2022.