According to recent research from Aviva Investors – the assets manager’s fifth annual Real Assets Study which reviews over 500 international institutional investors, including pension funds, insurers, and global financial institutions that together represent multi-trillion dollar assets – over 90% of global institutional investors actively consider Environmental, social, and governance (ESG) and sustainability in their real assets investment decisions, with 17% regarding it a crucial factor.
ESG investment funds
The report indicated that 67 % of institutional investors feel that they have an obligation to invest sustainably.
The report also shows the use of real assets to create positive ESG impacts has increased to 28% today in comparison to just 17% three years ago.
Additionally, over three-quarters of the institutional investors said they would favor a fund or strategy which prioritizes financial returns whilst incorporating ESG factors.
Nordea Asset Management (NAM) launches real asset ESG fund
In 2022, Nordea Asset Management launches a real asset ESG fund. The fund seeks to invest in listed real assets concentrated on environmental and social stewardship as well as technological innovation. The fund gives exposure to sustainable listed real estate and infrastructure companies.
With respect to the Aviva survey, the highest allocations are by North American investors, with almost a quarter having more than 20% of their portfolio in real assets, correlated to 19% of European and 17% of Asia Pacific investors.
As stated above, the majority of the institutional investors surveyed feel responsible for investing sustainably. And this priority for a returns-based approach was found to hold for 90 % of investors in North America, compared to 71% of European and 82 % of Asian investors.
Additionally, investments favoring the energy transition are expected to secure the best financial returns according to 56 % of the respondents, as well as being the most likely to provide the best ESG impact, according to 50% of respondents.
Obstacles in the way of investing in real assets and sustainability
Trouble finding opportunities, transaction costs, and valuations are considered the biggest barriers to increasing allocations to real assets. While Illiquidity and valuation risk is the main concern for investing in real assets more generally.
According to the Aviva report, respondents regard greenwashing to be the biggest material risk to invest in sustainable real assets, ahead of their concerns over valuations, which 44% said were a factor.
The chief investment officer for real assets at Aviva Investors, Daniel McHugh, highlighted that real assets are playing an important role in overall portfolios, offering investors a vast menu of options with varying degrees of risk and inflation protection built in. However, capital pricing models not sufficiently factoring in climate-related obsolescence in their numbers could present a material risk for investors.
For the sake of our planet, the majority of investors now consider sustainability when making real asset investment decisions.
To invest in sustainability or to establish a Luxembourg ESG fund, please contact your Damalion expert now.
