The overwhelming majority of global institutional investors are actively considering ESG and sustainability as part of their real assets investment decision making process, according to new research from Aviva Investors.
In its fifth annual Real Assets Study, Aviva found 93% of institutional investors actively take ESG and sustainability into consideration, with 17% of survey respondents saying they consider them critical factors.
Some 67% of investors said they felt they had a responsibility to invest sustainably and 79% said they favoured a fund or strategy that prioritised financial returns whilst integrating ESG factors.
The study of 500 institutional investors from around the world also found 64% intend to increase their allocations to real assets over the next two years, with 46% planning to do so by up to 10%. Investors said the biggest barriers to investing over the next 12 months were finding opportunities (53%), transaction costs and valuations (50%).
Daniel McHugh, chief investment officer, real assets, at Aviva Investors, said: “Inflation had an acute impact on the economic and investment landscape in 2022, making it increasingly expensive to hedge against it through traditional asset classes, whilst rising interest rates have eroded returns. The ability of real assets to provide inflation-linked income has woken investors up to the attractiveness of these strategies beyond simply being a diversification play.
“They are now playing a meaningful role in overall portfolios, offering investors a broad menu of options with varying degrees of risk and inflation protection built in. The study shows that demand is also being driven by the ability to assess the positive impact of these investments beyond returns, such as contributing to sustainability-related objectives.”
He added: “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. 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.”
