Big Changes Among Nations

Sovereign investors are ramping up their environmental, social and governance (ESG) investments. A new study by Invesco shows that two-thirds of sovereign funds are considering these socially conscious investments. That figure is up from less than 50% in 2017.

The adoption of ESG metrics by investors to pick investments has exploded across the headlines. Given the sheer size of sovereign funds and central banks, their influence in the space represents a significant shift. The Invesco report surveyed 139 central bank reserve and sovereign investment managers. This was the third time that Invesco has surveyed sovereign investors on ESG policies.

Digging into the Sovereign Investors Report

The Invesco report shows that 60% of sovereign funds now have a top-down ESG policy. That’s a jump from the 46% registered two years ago. Roughly 20% of central banks have adopted ESG standards, a nine-percentage point jump since 2017.

“The fact that over half of all sovereign managers now incorporate official ESG policies reflects advancements in investors’ understanding of how to derive value from their application,” said Alex Millar, Head of EMEA institutional distribution sales at Invesco.

“As the adoption of such policies in the construction of portfolios continues to develop, we expect to see application spread across asset classes. This year’s study shows this process is already beginning to take place, with sophisticated adopters moving beyond equities into fixed income, and even, in some cases, real estate and infrastructure.”

Western investors have represented the lions’ share of ESG investors. About 76% of Western managers have adopted ESG standards. But the biggest jump has come from sovereign funds in the Middle East. The report indicates that 67% of funds from Middle Eastern countries have adopted ESG policies. By comparison, that figure sat at just 30% two years ago.

Finally, of the top eight ESG elements, investors rated climate change the most important factor in 2019. Further, that factor was followed closely by sustainability and governmental transparency. Meanwhile, the factor with the least amount of consideration was corporate diversity.