- The global asset owner community, which includes pension funds, sovereign wealth funds, foundations, and endowments, possesses considerable influence and control over $23.5 trillion in assets.
- According to a survey conducted by Morningstar, 85% of asset owners believe that environmental, social, and governance (ESG) factors are important to investment policy.
- Asset owners are pushing for improvements in ESG ratings, indexes, data, and tools, and expect governments, rating agencies, standard-setting bodies, service providers, and markets to drive these improvements.
- About 40% of asset owners surveyed use external asset managers for implementing their ESG policies.
- Asset owners generally view ESG regulation as beneficial and express support for regulations aimed at achieving specific sustainability goals.
- Asset owners have been instrumental in developing ESG practices and engaging with companies on sustainability issues.
- The Glasgow Financial Alliance for Net Zero (GFANZ), an umbrella organization formed after COP26, will need financing from large asset owners to achieve its objectives.
- Managing for net zero amidst energy market volatility, geopolitical turmoil, and political polarization remains a challenge for asset owners.
- The Conference of the Parties (COP) serves as a platform for assessing global progress in combating climate change and requires influential voices, such as asset owners, to drive the dialogue.
The UN Framework on Climate Change is gearing up for the 27th annual Conference of the Parties (COP27) in Egypt. More than just a gathering of world leaders, COP27 aims to assess global progress in addressing and mitigating the impacts of climate change. Among the influential voices participating in the dialogue are the global asset owners, including pension funds, sovereign wealth funds, foundations, and endowments. With $23.5 trillion in assets under their control, these asset owners are increasingly engaged and outspoken on environmental, social, and governance (ESG) issues.
Roger Urwin of Willis Towers Watson’s Thinking Ahead Institute believes that asset owners have a critical role to play in the global climate change debate. Their allocations, ownership muscle, and trickle-down influence can open the door to net zero pathways. Furthermore, asset owners are taking ESG and climate change seriously. According to the Morningstar Voice of the Asset Owner Survey, 85% of asset owners believe ESG is “very” or “fairly” material to investment policy.
Surveyed asset owners are pushing for constructive changes around ESG and climate on multiple fronts. They expect improvements in ESG ratings, indexes, data, and tools, and look to governments, rating agencies, standard-setting bodies, service providers, and markets to drive these improvements. In terms of implementation, about 40% of asset owners use external asset managers, and two-thirds consider stewardship a significant part of their ESG program.
Asset owners generally view ESG regulation as beneficial, as it helps address greenwashing through greater transparency, enforcement, and better regulation. They also express support for regulations intended to achieve specific sustainability objectives. Asset owners have been at the forefront of developing ESG practices and engaging with companies on sustainability issues. They have pushed for disclosures on company sustainability issues and used their influence to address environmental and social concerns.
However, the challenge remains in managing for net zero amidst energy market volatility, geopolitical turmoil, and political polarization. Asset owners acknowledge the importance of managing energy and greenhouse gas emissions, which are critical ESG issues for them. Additionally, the formation of the Glasgow Financial Alliance for Net Zero (GFANZ) after COP26 requires financing from large asset owners that express favorable stances on specific regulatory objectives, such as “net zero by 2050.”
The COP proceedings aim to secure voluntary national commitments on carbon reductions and financing, reflecting the challenge of collective action in countering climate change. It is a complex and difficult-to-solve “wicked problem” that requires influential and steady voices to drive the debate forward. The global asset owner community is one of these important voices, using not only words but also actions to effect change.
