As stakes rise, institutional investors address an
increasingly complex and challenging sustainable investment
environment.
CHICAGO, Oct. 4, 2023 /PRNewswire/ -- Morningstar, Inc.
(NASDAQ: MORN), a leading provider of independent investment
insights, today published findings from its second annual Voice
of the Asset Owner survey, revealing that two of three asset
owners (67%) believe ESG has become more material to investment
policy in the past five years, with the environment and issues
around net-zero emissions cited as key ESG materiality drivers. And
while implementation challenges continue to persist, this global
cohort reported increasing their allocation to ESG strategies.
The global quantitative survey, conducted by Morningstar
Indexes and Morningstar Sustainalytics, included 500 asset
owners across 11 countries in North
America, Europe and APAC
with combined assets of approximately $10.7
trillion. Survey questions were based on direct
interviews conducted with 10 asset owners earlier this year.
Those surveyed included pension funds, insurance general
accounts, outsourced CIOs and family offices, with six in 10
managing more than $1 billion and
over a quarter managing $10 billion
or more. Questions covered investment approach, the materiality of
ESG considerations, perspectives on regulation and implementation
and the relative quality of ESG data, ratings and indexes.
Thomas Kuh – Head of ESG
Strategy, Morningstar Indexes, said: "The second
Morningstar Voice of the Asset Owner
survey confirms that institutional investors remain highly
committed to integrating ESG factors into their global investments,
but challenges related to lack of regulatory clarity and the need
for better data and resources continue to persist."
Growing Challenges to Implementation. Asset owners
identified a range of growing ESG implementation challenges this
year, ranking market data, the market environment, and regulation
highest. Tellingly, participants did not rate any ESG challenges as
having decreased:
- ESG market data is hindered by lack of standardization (30%) as
well as reliability and timeliness (29%), according to those
surveyed, both up from 15% last year.
- Impact on returns was again the leading ESG implementation
issue, cited by nearly four in 10 (38%), as sustainable investment
strategies had a challenging year in 2022 amid the strong
performance of the carbon-intensive energy and utilities sectors
and the downturn of more ESG-friendly technology stocks.
- Three in 10 surveyed cited ESG regulation as an implementation
challenge, up 10 percentage points from 2022.
Regulatory Confusion Another Growing Challenge.
While asset owners participating in Morningstar's qualitative
discussions earlier this year expressed optimism about the
usefulness of ESG regulation, they also expressed growing
frustration echoed in the quantitative survey:
- Those surveyed saying regulations and related reporting
requirements are a help fell by 11 percentage points from 60% in
2022 to 49%. The drop is especially pronounced in APAC nations,
falling from 59% last year to 46% this year and those with AUM of
$10 billion or more (63% last year,
49% this year). Those working for pension funds (46%) and insurance
general accounts (45%) were more likely to find ESG regulations
less helpful.
- Lack of clarity and rising costs are ESG regulation pain
points. Among the 28% of those surveyed saying ESG regulations have
been a hindrance, more than four in 10 (42%) see them as confusing
or unclear (up from 29% last year). This rises to 46% in
Asia. And only 18% of the 49%
globally who say ESG regulations have helped this year believe they
have minimal costs, down 20 percentage points from 38% in 2022 and
dropping to 15% among European asset owners.
Asset Owners a Catalyst for Change. While survey
respondents still see a marked improvement in the quality of ESG
data, ratings, indexes and tools in the past five years, asset
owners' needs continue to evolve:
- Nearly half (48%) would benefit from more
accuracy, with more accurate ratings a growing priority for those
with AUM of $10 billion or greater
(53% this year from 42% in 2022).
- When asked which elements of ESG ratings, indexes and data need
to be improved most over the next five years, quality and relevance
won out for the second consecutive year.
Asset owners are engaging with a range of stakeholders to close
gaps around the quality of ESG data, ratings and tools, holding
international standard setting bodies (38%), rating agencies (36%)
and politicians (34%) most responsible.
Artificial intelligence is expected to have a growing impact.
The majority predict that AI adoption will increase in five years,
most likely in data collection (70%) and ESG analysis
(66%), which jumps to 75% and 71%, respectively, in
Europe.
"As stewards of some of the largest pools of global capital,
asset owners have stayed anchored to their fiduciary duty despite a
range of challenges related to ESG market data, regulatory
confusion and market performance," added Arnold Gast, ESG Research Director at
Morningstar Sustainalytics. "As their job becomes increasingly
complex, asset owners continue to raise their expectations of a
range of key stakeholders to provide better insight, research, data
and tools to address the evolving sustainable investment
landscape."
About Morningstar Indexes and Morningstar
Sustainalytics
Morningstar Indexes and Morningstar Sustainalytics have recently
formed a strategic alignment to provide a more holistic and robust
ESG offering to Morningstar clients. This growing collaboration
includes ESG-related products, insights and research.
As the fastest-growing global index provider for the last two
years according to Burton-Taylor International
Consulting, Morningstar Indexes was built to keep up with the
evolving needs of investors—and to be a leading-edge advocate for
them. Morningstar's rich heritage as a transparent,
investor-focused leader in data and research uniquely equips
Morningstar Indexes to support individuals, institutions, wealth
managers and advisors in navigating investment opportunities across
all major asset classes, styles, and strategies. From assessing
risk and return with traditional benchmarks to helping investors
effectively incorporate ESG objectives into their investment
process, our range of index solutions spans an investment landscape
as diverse as investors themselves. We help investors answer
today's increasingly complex questions so that they can more easily
reach tomorrow's goals. Please visit indexes.morningstar.com
for more information.
Morningstar Sustainalytics is a leading ESG data, research, and
ratings firm that supports investors around the world with the
development and implementation of responsible investment
strategies. For more than 30 years, the firm has been at the
forefront of developing high-quality, innovative solutions to meet
the evolving needs of global investors. Today, Morningstar
Sustainalytics works with hundreds of the world's leading asset
managers and pension funds who incorporate ESG information and
assessments into their investment processes. The firm also works
with hundreds of companies and their financial intermediaries to
help them consider material sustainability factors in policies,
practices, and capital projects. Morningstar Sustainalytics has
analysts around the world with varied multidisciplinary expertise
across more than 40 industry groups. For more information,
visit www.sustainalytics.com.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment
insights in North America,
Europe, Australia, and Asia. The Company offers an extensive line of
products and services for individual investors, financial advisors,
asset managers and owners, retirement plan providers and sponsors,
and institutional investors in the debt and private capital
markets. Morningstar provides data and research insights on a wide
range of investment offerings, including managed investment
products, publicly listed companies, private capital markets, debt
securities, and real-time global market data. Morningstar also
offers investment management services through its investment
advisory subsidiaries, with approximately $264 billion in assets under advisement and
management as of June 30, 2023. The
Company operates through wholly- or majority-owned subsidiaries in
32 countries. For more information,
visit www.morningstar.com/company. Follow Morningstar on
Twitter @MorningstarInc.
©2023 Morningstar, Inc. All Rights Reserved.
MORN-P
Morningstar Media Contacts:
Tim Benedict, +1 203 339-1912 or
tim.benedict@morningstar.com
Orion Sang, Edelman Smithfield, + 734 678-2187 or
Orion.Sang@edelman.com
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