Survey reveals declining SI adoption rates and growing preference for passive strategies among investors
FTSE Russell has published the results of its annual global asset owner survey, analysing how sustainable investment (SI) is perceived and used by asset owners globally.
SI implementation has decreased from 80 percent in 2023 to 74 percent in 2024. Larger asset owners continue to implement SI at a higher rate (86 percent), while smaller ones show a downward trend (63 percent).
Concerns about the availability and use of estimated ESG data have dropped from 50 percent in 2023 to 22 percent in 2024. Previously ranked as the top concern, it is now the sixth most significant barrier to SI adoption.
Concerns about the lack of standardisation in ESG data, scores, and ratings have also declined, falling from the second to the eighth most significant barrier (37 percent in 2023 to 20 percent in 2024).
However, new barriers to increased SI adoption have emerged, including resources, methodology, and strategies. 39 percent of asset owners cite concerns about SI methodology as the most significant barrier, up from 18 percent in 2023.
Additionally, 25 percent of asset owners highlight challenges in determining the best strategy or combination of strategies for their portfolio, rising from 8 percent in 2023.
Although trust in data quality has improved, falling from 58 percent in 2023 to 38 percent in 2024, aligning portfolios with SI and climate guidance is now the top challenge (51 percent).
Stephanie Maier, head of Sustainable at FTSE Russell, noted that sustainable investment continues to be a key focus for asset owners, despite challenges related to regulation and market conditions.
The shift towards passive SI strategies is growing, with passive instruments overtaking active ones for the first time (66 percent passive vs 61 percent active).
Fiona Bassett, CEO at FTSE Russell, highlighted the increased confidence in available SI data as driving this shift.
Active management still dominates in assets under management for global SI bond and equity ETFs and mutual funds, with 58 percent active compared to 42 percent passive.
However, passive inflows were significantly higher over the 12 months to June 2024. Passive strategies saw $65bn in inflows, while active strategies experienced $26bn in outflows.
This year’s data also indicates a trend towards asset owners taking investment decisions in-house, with the use of external investment managers dropping over three years (46 percent in 2022 to 24 percent in 2024).
Changing views on SI regulation have led to 34 percent of asset owners changing fund names and descriptions by removing ESG/SI terminology, while 28 percent have changed fund compositions to comply with regulations.
In 2024, 51 percent feel SI regulation helps remove barriers to SI adoption, an increase from 40 percent in 2023.
The importance of biodiversity is rising, with 21 percent of asset owners already incorporating natural capital and biodiversity assessments into their strategies. This focus is expected to increase in the EMEA (44 percent) and Asia Pacific (39 percent) regions over the next year.
Moreover, 52 percent of those prioritising biodiversity are either directly investing in or adjusting their investment weightings based on biodiversity and natural capital considerations.
