Industry research has found that 7 per cent of global pension schemes and other institutional investors expect to decrease their focus on environmental, social and governance (ESG) factors in their investments over the next three years.

The study, conducted by SigTech, found that although a small minority planned to reduce their focus, 62 per cent stated that they expected to direct more attention to ESG in their investments.

Furthermore, 14 per cent said they expected their focus on ESG to increase “dramatically” between now and 2024.

When considering what impact ESG will have on their investment activities, 43 per cent stated that the environmental factor was the most important for them.

Almost a third (31 per cent) said social factors were most important, while 26 per cent selected governance as their main focus area.

When asked which ESG factors would have the an impact on how pension schemes and other institutional investors invest over the next three years, 85 per cent said they expected the focus on climate action to increase.

Additionally, 68 per cent predicted the focus on affordable and clean energy to increase and 63 per cent believed the focus on health and wellbeing to rise.

SigTech noted that the growing focus on ESG from institutional investors, combined with the digitising of the value chain of the investment management industry, meant institutional investors are increasingly looking to customise their investment portfolios.

“Just a few years ago it would have been a very daunting task for institutional investors to develop and implement their own index strategies, but it is now achievable,” commented SigTech head of strategic initiatives for institutional investors, Daniel Leveau.

“Custom equity portfolios allow institutional investors to define the investable universe, tailor their investment strategy to incorporate specific ESG policies and to directly hold individual securities.

“By applying the concept of alternative indexing methods, investors can gain exposure to different ESG factors that are optimal for them. Also, by owning certain securities directly, they can decide to what degree they want to be an active owner through voting and direct engagement.

“Pension funds and other institutional investors no longer need to search for an existing product that offers the best possible ESG fit for their needs as they can now create a product that meets them fully. One-size-fits-all products are not the solution, investors need to embrace customisation and direct ownership of securities.”

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