Large uptick in institutional investors committing to net-zero targets

Written by Adam Cadle

22/11/2021

Global institutional investors have significantly raised their ambitions to implement net-zero commitments across portfolios over the last 12 months, according to the latest edition of the Aviva Investors Real Assets Study, with European insurers leading their North American and Asian counterparts.

Fifty-two per cent of insurers and 50 per cent of pension funds have committed to achieving net-zero in their portfolios before 2050, an overall increase of 12 percentage points over the last 12 months. Of those committed to achieving net-zero by 2050, European insurers (53%) are ahead of North American and Asian insurers (both 51%).

Fifty per cent of insurers feel that the ability of managers to quantify ESG risk and impact is most important.

More broadly, appetite from institutional investors for real assets has continued to remain high, with 82% of insurers globally stating their intention to increase or maintain allocations over the next 12 months.

Daniel McHugh, chief investment officer, real assets, at Aviva Investors, said: “Our latest study reveals the pace at which real assets is evolving as an asset class on climate and ESG issues, and how critical those considerations are seen to investment decision-making. This includes a fundamental shift towards measuring and quantifying those factors, rather than paying lip service to them through pledges and policy alignment. Partly that is as a result of better understanding of the elements involved but also as end-savers scrutinise more for potential greenwashing practices.

"Encouragingly, real assets are often favoured by investors for integrating these themes into portfolios, as their positive impact is typically clearer to isolate and quantify. Moreover, the attraction of real assets has been further supported by their resilience over the past 18 months. Despite the exceptional challenges facing all markets, real assets have delivered robust income streams, underpinned by consistent returns and lower volatility relative to other asset classes, bringing further recognition of the all-round qualities these strategies can provide to a portfolio beyond being simply a diversification play.”

When asked which climate focused KPIs were most important to their organisation, ‘physical climate risk’ was cited by insurers (35%) and pension funds (37%), followed by ‘carbon footprint’ (32% insurers and 36% pension funds). Respondents were also vocal about the challenges faced in reaching these goals, with over 80% of respondents (insurers 87% and pension funds 85%) rating the environmental pressures of investing into new infrastructure as either very or slightly discouraging.

Regulation continues to be the biggest hurdle to real assets allocation for insurers (38%), whilst pension funds are most concerned about illiquidity (37%). Reflecting the move away from processes towards quality of reporting to investors, 46% of respondents cited transparent reporting and target-setting on environmental factors as a very encouraging factor when it comes to improving environmental credentials. For insurers (51%), real estate equity is the real asset they are most likely to increase investment in.

The annual survey from Aviva Investors is based on responses from over 1,100 decision-makers at global insurers and pension funds which together represent over €2trn of assets under management,

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