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SWFs and central banks struggle with ESG data

Data, reportsSovereign wealth funds (SWFs) and central banks say they lack quality data and ratings when trying to implement environmental, social and governance (ESG) in their investment process, a study has found.

Just over 50% of SWFs said data and ratings were the main challenges for ESG investing, according to the Invesco research.

ESG adoption is rapidly gaining traction amongst SWFs and central banks, with nearly two thirds of sovereigns now incorporating an ESG policy, up from 46% in 2017. The level for central banks has risen from 9% to 20%.

Invesco found that 65% of the SWFs with ESG policies at the asset class level were applying them to fixed income portfolios - and the lack of data for the asset class compounded the wider problem in equities.

Green bonds were seen as an easier way to implement ESG criteria into fixed income by both sovereign investors and central banks. Nearly 30% of central banks invest in green bonds, while just under half of SWFs do.

But problems with supply and liquidity of green bonds inhibit large exposures, Invesco said.

Alex Millar, regional head of institutional distribution sales at Invesco, said: “The fact that over half of all sovereign managers now incorporate official ESG policies reflects advancements in investors’ understanding of how to derive value from their application.

“As the adoption of such policies in the construction of portfolios continues to develop, we expect to see application spread across asset classes. This year’s study shows this process is already beginning to take place, with sophisticated adopters moving beyond equities into fixed income, and even, in some cases, real estate and infrastructure.”

A further finding from the research conducted among 139 respondents was the dominance of environmental-led investing over governance and social factors. This was also found recently in research of professional investors’ attitudes by NN Investment Partners.

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