The central banks, sovereign wealth and public pension funds across the world are making a fast pace shift towards greener and more activist investment strategies due to the COVID-19 pandemic, a recent annual survey found.
The Global Public Investor survey by think-tank Official Monetary and Financial Institutions Forum (OMFIF) sampled 102 institutions overseeing a combined $7 trillion this year to track how the pandemic and other long-term trends are affecting them.
According to media reports, the findings of the survey showed the scale and speed at which environmental, social and governance (ESG) factors were now driving investment decisions.
“There has definitely been an acceleration due to COVID. At the beginning (of the pandemic), we thought there would be a focus on the short-term, the quick boosts to recoveries. But actually, there has been this realization that our financial systems are so vulnerable to things outside the financial world,” OMFIF’s chief economist Ms. Danae Kyriakopoulou said.
For the first time since OMFIF started asking about ESG, the majority in all three categories of global public investors (GPIs) said that they now implement it in some way. This differed widely between types of institutions, with all pension funds implementing ESG criteria, compared with around two-thirds of sovereign funds and just over half of central banks.
The Central banks globally made up nearly 60 percent of OMFIF’s survey sample this year and while many do not invest in equities or infrastructure projects, green bonds remain their most popular ESG option. Over a third of the banks asked in the survey now hold them, although some also said that liquidity and lack of supply of green bonds, especially in dollars, can be a problem.
Further, the survey showed a trend for more active ownership, especially among sovereign wealth and public pension funds. Rather than just excluding polluters, many funds are now specifically buying companies or projects that transition to more sustainable practices from dirtier or less responsible ones.
There are still clear gaps though. The survey found that around 60 percent of GPIs did not use ESG benchmarks, a kind of shopping list of assets that they can and cannot own, and only 8 percent had their own bespoke benchmarks.