Despite its controversies during past couple of years, environmental, social, and corporate governance (ESG) adoption remains at an all-time high, according to Capital Group
In its fourth annual ESG Global Study, the US asset manager found that EMEA (Europe, Middle East, Africa) is the leader with 94% of respondents adopting ESG – up one percentage point from last year. ESG adoption rates in Asia Pacific (93%) and North America (75%) are unchanged from last year.
Jessica Ground, global head of ESG, Capital Group, commented: “ESG adoption has remained high, with nine in 10 investors in the study identifying as ESG users. And over half of respondents (57%) indicate plans to increase allocations to ESG funds in the next 12 months.”
The Capital Group ESG Global Study 2024 was commissioned to gather the views of 1,130 global investors, including 565 global intermediaries (fund of funds, discretionary fund managers, private banks, wirehouse broker/dealers, registered investment advisors, independent advisory) from 24 countries on ESG investing via an online survey conducted by CoreData Research during May and June 2024.
Demand for diverse investment themes
In particular, 50% of surveyed investors expect to increase allocations to multi-thematic ESG strategies over the next two to three years, with strong appetite from Asia Pacific, where 55% are set to raise allocations.
Respondents cited diversification (64%), the potential for better risk-adjusted returns (50%) and broader ESG impact (49%) as core benefits of multi-thematic strategies over single theme strategies.
Rise of AI seen to bring new ESG investment risks
While investors expect to turn to AI to address data challenges, its rapid rise is perceived to pose new material ESG risks to investment decisions, according to respondents.
ESG data consistency and reliability are still viewed as significant challenges to adoption (53%).
Only 10% of respondents use AI now to analyse ESG data, but 53% plan to use it in the future, rising to 60% among investors in Asia-Pacific.
Indeed, six out of 10 investors view the impact of AI as the most material social issue over the next 12 months while 54% are concerned about the environmental impact from AI’s power-intensive operations.
“Investors are taking tentative steps to use AI as a tool to tackle ESG’s data challenges. AI as an investment opportunity, however, has prompted greater deliberation of related ESG risks,” said Ground.
ESG headwinds and tailwinds
Nevertheless, nearly six in 10 (58%) think investors will maintain a long-term commitment to ESG despite current geopolitical and macroeconomic headwinds.
But, a majority of respondents say the pace of sustainable policy implementation (57%) and speed of ESG regulatory change (56%) present tailwinds that will support faster progress on ESG.
