According to the results of a survey by Invesco, nearly a third of sovereign wealth funds and central banks have raised their focus on environmental, social and governance issues over the past year with the coronavirus-induced COVID-19 pandemic highlighting issues ranging from carbon emissions to inequality.
Tackling climate change related risks are within their mandate, felt nearly 63% of central bank respondents, with nearly 50% believing that mitigating the consequences of climate change should be a monetary policy objective.
Last week, the European Central Bank said, it will provide higher weightage to climate change in its core policy decisions.
More than 50% of respondents to Invesco Global Sovereign Asset Management Study said, they had specific ESG policies, up from 44% in 2019’s survey.
The survey saw the participation of 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 coronavirus-induced COVID-19 pandemic has accelerated underlying ESG-related issues following disruptions to economic activity which has lowered carbon emissions, while a rise in unemployment levels and health risks 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.”
Central banks are keen to factor in climate change related risks in their investment equation, with 64% of respondents agreeing that green bonds were a desirable foreign reserve investment.
Sovereign wealth funds have increased their focus on ESG and are scouting for sustainable investment opportunities.
Around 52% of sovereign wealth 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; 57% of sovereign funds respondents felt that the market had not fully priced in the long-term implications of climate change, offering opportunities for higher returns.