Sovereign asset managers raise ESG focus in wake of COVID-19 – Invesco By Reuters

© Reuters. FILE PHOTO: Steam rises from a chemical plant in an industrial zone in Hamilton, Ontario, Canada May 13, 2017. REUTERS/Chris Helgren/File Photo


By Tom Arnold

LONDON (Reuters) – Around a third of central banks and sovereign wealth funds have raised their focus on environmental, social and governance issues over the past year as the COVID-19 pandemic highlighted issues ranging from carbon emissions to inequality, an Invesco survey found.

A total of 63% of central banks responding to the survey felt tackling climate change fell within their mandate, with nearly half believing that mitigating the consequences of climate change should be a monetary policy objective.

In the latest step by a major central bank to curb carbon emissions, the European Central Bank said last week it will take greater account of climate change in its core policy decisions.

More than half of central banks and sovereign funds responding to the Invesco Global Sovereign Asset Management Study said they had specific ESG policies, up from 44% in 2019’s survey.

The asset manager surveyed 141 chief investment officers at a mix of sovereign wealth funds and central banks, managing around $19 trillion in assets in total on topics ranging from ESG to China and liquidity.

The pandemic had accelerated underlying ESG-related issues as disruptions to economic activity lowered carbon emissions, while the health crisis and rise in unemployment shone a light on inequality.

“The pandemic has definitely accelerated the ESG focus,” said Rod Ringrow, Invesco’s head of official institutions.

“What we’re seeing is a greater social conscience and the need to incorporate it now as a matter of course and the pandemic may have been the catalyst to this ‘build back better’ approach.”

More central banks are also keen to consider the climate when investing, with 64% of respondents agreeing that green bonds were a desirable foreign reserve investment.

The People’s Bank of China has said it increased the share of green bonds in its foreign exchange reserve investments while controlling investments in high-pollution assets.

Sovereign funds too are pushing on in scouting out sustainable investment opportunities.

The survey showed 52% of sovereign fund respondents said improving returns was their current motivation for adopting ESG policy, marginally more than the number who cited reducing risk as the biggest driver.

And 57% of sovereign funds responding said the market had not fully priced in the long-term implications of climate change, offering opportunities for higher returns.

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