Pension schemes re-evaluating ESG approaches in light of Ukraine conflict

Almost two-fifths (39 per cent) of institutional investors, including 41 per cent of pension funds, have or will re-evaluate their ESG approaches due to recent geopolitical developments, a new poll conducted by Bfinance has revealed.

The survey, which included 418 pension funds, insurers and other institutional investors from 39 different countries, discovered that 48 per cent of investors had direct exposure to Russia before Q1 2022, of which 45 per cent have either fully exited or are in the process of doing so.

As such, the poll showed a corresponding shift in asset allocation, with real assets receiving particular attention as 46 per cent of investors expected to increase exposure to infrastructure in the next 12 months.

This represents a 15 percentage point increase on the last 12 months, with 31 per cent increasing their exposure to infrastructure during that time.

Bfinance also found that 41 per cent of investors expected to increase the inflation sensitivity of their portfolio in 2022, with 14 per cent of investors being ‘very concerned’ about the impact of inflation and 68 per cent being ‘moderately concerned’.

Bfinance head of investment content, Kathryn Saklayala, commented: “We are very grateful indeed to the senior investors who contributed their insights a few days ago for this report. To some extent, the asset allocation changes we are seeing here represent a continuation of some longer-term shifts, such as the shift in favour of illiquid strategies and real assets.

“Yet investors’ concerns about inflation and rising rates—which come through in these statistics—are giving greater impetus to these trends. It is particularly interesting to see the large minority of respondents for whom geopolitical developments are prompting a change in ESG approach. This has chiefly been focused on topics such as weapons manufacturers, energy companies and country exclusions.

“Even among those that indicated that the conflict would not affected their ESG approach, many said that it had illustrated the importance of having a robust approach here. Indeed, we saw cases where ESG-oriented investors had significantly reduced or eliminated Russia exposure ahead of 2022, which benefited performance in Q1.”

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