Allocations to ESG fixed income and alts to boom, says BlackRock

While equity allocations will remain central to the sustainable asset allocation of Asian investors, they are likely to increase their investment allocations to fixed income and alternatives dramatically, according to the new Global Client Sustainable Investing Survey from BlackRock, published on Thursday (December 3).

Only 30% of regional investors currently invest in sustainable fixed income funds, the same number in sustainable illiquid alternatives and 6% in sustainable liquid alternatives, but those figures are expected to shoot up to 49%, 42% and 15% in the future.

However, the region's investors are also among the world's least convinced about sustainable investing in general, with close to half uncertain that such investments could offer ongoing returns. 

The US investment management firm's research is based on interviews with 425 investors in 27 countries, including corporate and public pension plans, asset managers, endowments, foundations, and global wealth managers with nearly $25 trillion in assets under management (AUM).

The headline findings were, perhaps, unsurprising. Overall, global investors said they intend to double their allocations to environmental, social and governance (ESG) assets over the next five years, with one-in-five saying that the pandemic would accelerate their sustainable investing allocations.

Mark McCombe, chief client officer at BlackRock, calls the convergence of political and regulatory pressures, technological advancements and client preferences a “tectonic shift” which has pushed sustainability into the mainstream of investing.

SUSTAINABLE INVESTING REMAINS NICHE

But what also becomes clear is that Asia Pacific has some way to go before sustainable investing is regarded as important as it is in Europe.

“Region by region, clients are prioritising ESG issues and implementation differently. While all recognise the primacy of climate risk, there are different levels of focus on issues like human rights, and diversity and inclusion,” said McCombe.

Although 64% of European respondents said that they viewed sustainable investing as very important and 93% said that it was important overall, those figures slip in Asia. Only 32% agreed that it was very important even if 82% said that it was important overall.

Drilling into current and future allocations, the picture shows how much work still needs to be done in the region. 

While only one in 10 respondents in Europe, Middle East and Africa currently have no sustainable allocations, a quarter expect to have more than 75% of their portfolios invested sustainably within the next five years. In the Asia Pacific region, however, those with no ESG allocations currently are one in three. And by 2025 that figure is expected to rise only to where Europe is now – one in 10.

What holds investors back is the quality and availability of data. “There is considerable agreement across the industry that this is an area that requires further focus and emphasises the need for companies to disclose sustainability metrics according to consistent frameworks,” the report says.

In line with investors around the globe (53%), the majority of investors in Asia (45%) reported that poor quality or availability of ESG data and analytics presented the biggest challenge to adopting sustainable investing.

But perhaps the elephant in the room remains a certain scepticism about sustainable investing itself across the region. Although only 18% of investors in Europe and 29% globally said that they hadn’t embraced ESG investments because they were unsure of their ability to generate persistent returns, that figure rises to 43% in Asia Pacific.