Changes in climate policies and public perception, along with technological advances, are already impacting investors and businesses, resulting in both risks and opportunities as the UK looks to achieve net zero by 2050. BW’s in-depth survey investigates areas of concern which are common among pension scheme trustees and other asset owners.
When asked why they were considering ESG factors in their decision-making, the top response was ‘responding to legislation’ (91%), followed by ‘managing risk’ (77%), as well as ‘demand from members and policyholders’ (28%).
‘New regulations’ was also cited highly (42%) as a reason for investors to make a significant shift in their investments. This was second only to ‘recommendations of their advisers’ with 48%, demonstrating the vital role investment consultants play in influencing the sustainable investment decisions of those they advise. There is clearly a need for investment consultants to bring ESG risks and opportunities to the table and help investors navigate these issues.
Additionally, when asked what approach they were taking to ESG, 34% said they were just getting started, while only 13% of investors stated they were taking a minimum compliance approach to ESG investing.
The research also names climate change as the most important ESG theme at 87%, followed by biodiversity and ecology at 49% and transitioning to a low carbon economy at 47%. Themes such as gender diversity (27%), multicultural diversity (25%) and pay equality (22%) also featured.
Amanda Latham, Head of Policy at BW, commented: “Regulation isn't a blueprint for running a successful pension scheme, trust or endowment and we would urge investors to think beyond regulation and embrace the opportunities presented by sustainable investing.
Those who effectively manage risks and integrate sustainability considerations into their investment thinking should be well-placed for the transition to a low carbon economy.
“The fact that regulation is the key driver of ESG appetite poses the question of what regulation we need to effectively encourage the economic transition away from reliance on fossil fuels. We urge regulators to take note in their drive to get investors to take account of the risks and opportunities stemming from climate change and the shift to net zero. It could be argued COP was a missed opportunity to make significant changes.
“In order for investors to be prepared, or even ahead of the game, managing a portfolio’s exposure to climate risk will be essential to achieving good investment outcomes. Broader than climate change, we expect to see even more regulation in coming years, including disclosures on biodiversity and broader sustainability like inequality and social impacts, so this area is only going to grow in importance for investors.”
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