Almost one in three Asia-Pacific investors are investing in real assets for their positive ESG impact, according to new research from Aviva Investors.
The study examined investor attitudes towards sustainable real assets and canvassed the views of 500 institutional investors from Europe, North America and Asia Pacific, including 25 Australian institutions.
It showed 31% of APAC investors named positive ESG impact as a primary reason for allocating to real assets for 2023, up from 22% three years ago.
APAC Investors were increasingly more receptive to strategies with a pure ESG real asset focus rather than a returns-led approach.
Compared to Europe and North America, APAC investors were also most open to pure ESG funds or strategies which focus on net zero and decarbonisation.
APAC institutions reported the strongest intended commitment to a net-zero future, however there was considerable work needed to achieve this with only 15% of APAC respondents already reporting on their progress to net zero.
Daniel McHugh (pictured), Chief Investment Officer, Real Assets, at Aviva Investors, said that demand was 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% of institutional investors see climate-related obsolescence as the most material risk,” McHugh said.
“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% 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.”
Globally, the study found almost two-thirds of organisations planned to increase their allocations to real assets in the next two years.
About 93% of global institutional investors were actively considering ESG and sustainability in their real asset investment decisions, with 17% considering it a critical factor.
More than half of institutions were unsure or lacking confidence in their ability to meet their long-term net-zero and sustainability commitments.
Just under half of respondents believed direct investment was the best method for gaining exposure to real assets, and some 47% reported that strategies with ESG/sustainability targets were of most interest when investing in sustainable real assets.