Regulatory policy

More sovereign wealth funds are adopting a formal ESG policy – study

Smoke billowing from a chimney is pictured in Glasgow, Scotland, Britain November 6, 2021. REUTERS/Yves Herman

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  • 75% of sovereign wealth funds have a policy, compared to 46% in 2017
  • 30% have set a carbon emissions target
  • More inclined to support “impact” investment projects

LONDON, July 27 (Reuters) – Three-quarters of the world’s sovereign wealth funds now have a formal environmental, social and governance investment policy, but only 30% have set targets to reduce carbon emissions in their investments, according to a study released Wednesday. .

The policy move comes as institutions increasingly seek to position themselves for the shift to a low-carbon economy in the fight against climate change, and is up from 46% five years ago, according to the latest study by Invesco Global Sovereign Asset Management.

The study surveyed 81 sovereign wealth funds and 58 central banks with combined assets of around $23 trillion.

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Despite growing concerns about climate change, less than a third of sovereign wealth funds said they had implemented a target to reduce their carbon emissions, although this figure was up from 23% the previous year .

Strategies to achieve these goals included selling high-emitting assets, pushing companies to reduce emissions, tilting portfolios to favor greener companies, and increasing investment in climate-friendly technologies like renewable energy.

Those with a formal ESG policy cited a range of challenges to implementing it properly. Chief among them was the lack of clear regulatory standards around ESG investing, which 37% of respondents described as a “significant challenge.”

Other concerns included data quality and ESG ratings and concerns about ‘greenwashing’, where the environmental benefits of an investment could be misleading.

“There is a lack of transparency, which poses reputational risks,” the report said, citing a sovereign wealth fund focused on development in the Middle East.

In order to avoid such situations, more SWFs were looking to invest in so-called “impact” projects, where results are determined by measurable outcomes that can be verified and tracked over time.

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Reporting by Simon Jessop; Editing by Elaine Hardcastle

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