Pressure from pension plan participants and other stakeholders has grown significantly in importance as a rationale for asset owners to consider ESG factors in the investment process, according to a global asset owner survey by Morningstar.
In the third iteration of the annual survey, pressure from stakeholders ranks as the third most common response at 29%, up from the low double digits in 2023 and around 20% the year before.
Reluctance from stakeholders such as policyholders and plan members is at the same time also a top three barrier (34%) to pursuing an ESG strategy, according to the survey. This is in line with previous years.
Arnold Gast, director of ESG research at Morningstar Sustainalytics, said both the level of involvement of stakeholders, and their individual preferences, appeared to be very different across regions and asset owners, leading to them being both a motivation and a barrier.
The survey spanned 11 countries, with 100 respondents from North America and 200 each from Europe and the Asia-Pacific region. The asset owners included outsourced chief investment officers (20%), pension funds (19%), insurance general accounts (19%), and family offices (17%), with sovereign wealth funds and endowment foundations also among those represented.
At a regional level, respondents in North America showed the highest positive effect from stakeholder pressure at 39%, while Europe and APAC came in at 25% and 29%, respectively.
Paul Schutzman, head of solutions, institutional investors at Morningstar, contrasted this with a strong positive influence from “local regulations and regulators” in Europe and APAC, at 30% and 37%, while in North America only 18% of respondents said that regulations and regulators were important in incorporating ESG considerations.
“The fact that stakeholders are both a motivator and a barrier speaks to the lack of clarity around ESG overall,” he added.
“Stakeholders and plan participants often have diverging views on ESG issues and may have a highly inconsistent understanding of how ESG is being incorporated into the investment process by fiduciaries and professional investors.”
APAC most postive on active ownership
More than two-thirds of asset owners surveyed (67%) indicated that “ESG has become more material” in the past five years, with Morningstar suggesting this is for reasons including improved understanding of the linkage between ESG issues and company performance and increased regulatory action.
There was a big jump in the number of asset owners indicating that social factors have become more material, up 20 percentage points from 38% in 2023. This month a new taskforce has been launched to drive corporate reporting on social matters that could spell financial risks.
When it comes to incorporating ESG considerations, nearly eight in 10 (78%) survey respondents indicated viewing active ownership as useful in driving the implementation of their ESG programmes, with direct engagement with companies ranked as the most important and effective tactic across all regions.
Regionally, asset owners in the Asia-Pacific region are most convinced of the value of active ownership, with 84% indicating it useful compared with 73% and 78% in Europe and North America, respectively.
The Morningstar survey also indicates that asset owners have become a bit more optimistic about the impact of ESG regulations, which backs the findings of another recently published asset owner survey.
In the Morningstar survey, the proportion of respondents saying regulations are either a “slight help” or a “major help” has increased five percentage points.
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