ESG impact a top factor for Australian insto investors in 2023

30 January 2023

Aviva Investors have today launched the fifth edition of their award-winning annual ‘Real Assets Study’ and have taken a deep dive into investor attitudes towards sustainable real assets.

The Study has canvassed the views of 500 institutional investors — drawn from the UK, Europe, North America and Asia Pacific region, with US$3.5 trillion of assets under management collectively with 125 APAC (incl. 25 Australian) institutions included.

Mr Daniel McHugh, Chief Investment Officer, Real Assets, at Aviva Investors said “The Study shows that demand is also being driven by the ability to assess the positive impact of these investments beyond returns, such as contributing to sustainability-related objectives.”

“Whilst concerns about high valuations feature prominently in this year’s responses, just 22 per cent of institutional investors see climate-related obsolescence as the most material risk. Currently, capital pricing models do not adequately capture new factors such as this in their numbers, which carry material risk for investors. That has to change. As the market looks at assets through a net-zero lens, even prime assets could become vulnerable. Investors must be alive to how quickly – and to what extent – obsolescence could accelerate and the potential impact it could have on portfolios.”

“It is clear real assets investors value the different access routes available to them. Gone are the days when allocations to each asset class within real assets would be looked at in isolation. Instead, investors are often looking for a multi-asset and outcome-led approach, which can align with corporate values. With 81 per cent of investors citing performance track record as being the most important criteria in selecting real assets manager for a sustainable mandate, it is hugely important they choose an asset manager able to make relative value calls that also understands the challenges involved in achieving long-term ESG objectives.”

Key findings:

Asia-Pacific focus

  • The use of real assets to make a positive ESG impact has climbed, with 31% of APAC investors naming positive ESG impact as a primary reason for allocating to real assets for 2023
    • This has risen, up from 22%, three years ago
  • Our region’s investors are more becoming increasingly more receptive to strategies with a pure ESG real asset focus, than a returns-led approach
  • Compared to Europe and North America, APAC investors are also most open to pure ESG funds or strategies which focus on net zero / decarbonisation

Our region’s commitment to ESG drives results 

  • APAC institutions report the strongest intended commitment to a net-zero future
    • However, there is considerable work to achieve this: only 15% of APAC respondents are already reporting on their progress to net zero

Global view

  • Almost two-thirds of organisations plan to increase their allocations to real assets in the next two years.
  • More than nine in ten (93%) of global institutional investors actively consider ESG and sustainability in their real assets investment decisions, with 17 per cent considering it a critical factor.
  • 56% of institutions were unsure or lacking confidence in their ability to meet their long-term net-zero and sustainability commitments 
  • 46% believe direct investment is the best method for gaining exposure to real assets 
  • 47% reported strategies with ESG/sustainability targets were of most interest when investing in sustainable real assets

See attached Report