By Sarah George
Copyright edie
These are some of the headline findings of Morningstar’s latest annual global survey of 500+ asset owners. Participants included pension funds, insurance general accounts, outsourced CIOs and family offices.
The asset owners have, in the main, not gleefully abandoned their ESG commitments due to external pressures like global economic uncertainty, Trump tariffs or the growing culture wars around net-zero and DEI.
Nearly six in 10 (58%) of those polled believe ESG materiality has increased in the past five years. The US is the only country where more respondents perceive ESG as having become less material (34%) than more material (30%) over this timeframe.
One in ten of the asset owners is accounting for ESG-related factors across the entirety of their portfolios, up from 5% last year. A further 27% are covering at least 51% of their portfolios, a proportion that is holding steady.
Asset owners are most likely to implement considerations relating to energy management, physical climate risks and the low-carbon transition.
Looking at how the asset owners communicate their efforts, seven in ten said they still use the term ‘ESG’ to some extent. But a more popular term in North America by far is ‘responsible investment’.
Scuffles over fiduciary duty
This summer, 21 Republican state and city financial officers, collectively managing around $2trn, asked more than a dozen investment giants to remove ESG from both their messaging and strategy.
They had asked the likes of BlackRock, Vanguard, State Street, Bank of America and JP Morgan to “recommit to the foundational principles of fiduciary duty, loyalty, objectivity, and financial focus”, avoiding any framing of “deterministic future outcomes as long-term risks”.
Their letter stated that: “Climate change is a common example of this issue, where potential risks—often uncertain and already accounted for in insurance and financial markets—are framed as certain and catastrophic to justify forcing companies to take immediate actions that may not align with their long-term business interests.
“Successful long-term investing relies on diversified portfolios rather than speculative predictions presented as guaranteed outcomes,” it added.
A group of 17 Democratic state financial officers subsequently began imploring asset managers to continue – or enhance – their management of climate-related risks over various time horizons.
They stated: “Fiduciary duty, as properly understood, requires — not prohibits — investor consideration of material risks and long-horizon opportunities.”
Of the asset owners polled by Morningstar, 61% agree that ESG considerations go hand in hand with fulfilling their fiduciary duty – up from 53% last year. Only 4% believe that ESG considerations and fiduciary duty are at odds.
Moreover, the majority of those polled (55%) believe that ESG reporting and due diligence regulations help their business, rather than hindering it.
