Disruption and uncertainty drive asset owners to rethink asset allocation
Geopolitical and market uncertainty is reshaping investment decisions. Key material issues include trade disputes (76%), US administration policies (73%), and currency volatility (62%). Generative AI is also influential (61%). Around 40% of asset owners have reduced or plan to reduce US allocations, driven by volatility, tariffs, and regulatory uncertainty. Private markets allocations average ~20% of AUM, with modest growth expected.
ESG reexamined and reaffirmed
Despite debate over terminology, 69% of asset owners still use “ESG”, with alternatives such as “sustainable investment”. ESG integration continues to rise, with 44% of AUM incorporating ESG factors and 20% applying it to over 75% of assets. Key drivers include stakeholder pressure, ethical principles, and fiduciary duty (36%). Barriers include perceived impact on returns (53%), data limitations (44%), and reporting challenges.
Shaping climate strategy: Global trends and local nuances
Climate remains the most material environmental issue. Asset owners employ multiple approaches: 50% measure portfolio carbon footprints, 46% invest in climate solutions, and 43% track net-zero progress. Engagement is preferred over portfolio decarbonisation (47% vs 29%). Regional differences persist, with lower adoption of net-zero tracking and green bonds in North America.
Stewardship: A key lever in climate and ESG implementation
Stewardship is widely valued, with 77% finding it useful for ESG implementation. Common practices include shareholder voting (52%) and engagement with policymakers and industry groups. Direct engagement is ranked most important, indicating a shift towards more active and coordinated stewardship strategies.
Regulatory reality check
Asset owners generally view ESG regulation positively, with 55% considering it helpful, particularly in Europe and APAC. Benefits include standardised frameworks (61%) and improved reporting. However, challenges include excessive bureaucracy (66%) and inconsistent standards (58%). Most respondents (46%) view recent regulatory rollbacks negatively.
Asset owners take charge: ESG implementation and priorities for improvement
More asset owners are managing ESG internally (61%), reflecting a desire for control and cost efficiency. Preferences for ESG data are mixed between consolidated and granular approaches. Key desired improvements include clarity (34%), quality (23%), and materiality (13%) of ESG data. Enhanced analytics, benchmarks, and forward-looking metrics are also valued for decision-making.
