Asset owners and managers have faced political backlash and lawsuits for their use of environmental, social and governance factors when investing (especially BlackRock). Those rebukes led to some relatively small divestments but the anti-woke campaigns and legislative efforts to stymie ESG investing have effectively failed. Big institutional investors are leaning into ESG investing as much as ever.

In a Morningstar Indexes and Sustainalytics survey this summer of 500 pension funds, endowments, insurance companies, outsourced chief investment offices, family offices, and other investors with an aggregate of $18 trillion in assets, 67 percent said that ESG has become more important during the past year. The survey also showed the group was using ESG factors to manage 42 percent of their assets under management. More than 60 percent of the institutions managed more than $1 billion and 29 percent are managing at least $10 billion. The respondents came from 11 different countries, but 100 were from either the U.S. or Canada, 200 were based in Europe and 200 were based in the Asia-Pacific region.

Every investor surveyed said they were allocating to strategies that take ESG factors into account and the factors are playing a major role at a greater number of them. The percentage of asset owners with more than half their assets reflecting ESG considerations has increased each year; 29 percent in 2022, 34 percent in 2023, and 35 percent in 2024.

More than half of the investors (53 percent) said that ESG considerations are part of their fiduciary responsibility and although other factors remain substantial, climate change was the most important. Like Temasek and People’s Pension, institutional investors are betting big on sustainability. Investcorp predicts ocean warming and climate change will have a greater impact on investing than the low-interest-rate era that just ended.

Asset owners are also excited about the potential impact of artificial intelligence on ESG data. More than 70 percent said they hope the use of AI will increase in the next five years and drive innovation in data collection, analysis, reporting, portfolio construction, and index creation.

Big investors acknowledge that the use of ESG factors faces headwinds. Research has shown that private ESG funds perform as well as others but in general, more than 40 percent of survey participants are worried that the factors will have a negative impact on return — a slightly greater percentage than in years past. Over 30 percent also said a lack of standardized data, and client or stakeholder reluctance were barriers. However, less than 20 percent said that political pressure or macro geopolitical issues kept them from using ESG factors.

Greenwashing — making false or misleading statements about the benefits of environmental factors — is still perceived as a problem by some investors. The proportion that describe it as a “major problem” has remained at 19 percent. More asset owners in the U.K. (26 percent) and China (25 percent) said it was a major problem.

Still, those headwinds are not causing institutional investors to turn away from ESG, which will affect their beneficiaries and stakeholders, market dynamics, corporate governance, investment trends, and regulatory landscapes, according to Morningstar.

“This year’s survey results clearly indicate that while there are regional differences in priorities and challenges, the overarching trend is a positive move toward more sustainable investing. As long-term investors, asset owners are increasingly prioritizing ESG factors for managing risk, meeting regulatory and fiduciary requirements, aligning with stakeholder expectations, and in some cases, considering the broader impact of their investments on the world,” Morningstar’s report said.