Socially responsible investing catching on among sovereign funds: study

LONDON (Reuters) - Almost two thirds of sovereign investors are making social and environmentally friendly investing part of their approach, up from less than half two years ago, according to a study by Invesco released on Monday.

A buzz phrase that is increasingly being folded into how fund managers pick assets, environmental, social and governance’s (ESG) uptake has been more patchy among sovereign wealth funds and central banks which are among the world’s largest global investors.

Invesco found 60% of sovereigns include a top-down ESG policy, up from 46% in 2017. The rate of central banks incorporating ESG has nearly doubled to 20% from 11% in 2017, Invesco found in its survey of 139 sovereign investors and central bank reserve managers.

ESG remains most prevalent among sovereigns in the west, with 76% adopting the policy. But the number of Middle East sovereign funds using the policy has doubled to 67% from 30% in 2017.

The scale, size and long-term outlook of sovereign funds’ means they are well-placed to include ethics and sustainability in their investment process. But the uptake had been less broad than initially anticipated, Invesco found in a previous report in 2017.

The latest study suggested that might be changing.

“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, Invesco’s Head of EMEA institutional distribution sales.

“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.”

Although equities has been the initial starting point for ESG implementation, 65% of sovereign funds that incorporate ESG at the asset class level have now widened it to their fixed income portfolios, the study found.

Reporting by Tom Arnold, editing by Ed Osmond