Leader funds usher in new era of ESG
SYDNEY, November 16, 2020 – The Asset Owner 100 (AO100) – the world’s 100 largest asset owners grew by 6% last year to reach over US$20 trillion, according to research from the Thinking Ahead Institute (TAI). Pension funds remain the single biggest group of asset owners accounting for over 60% of assets, followed by sovereign wealth funds (32%) and Outsourced Chief Investment Officers (OCIOs) and Master Trusts combined (7%).
Roger Urwin, co-founder of the Thinking Ahead Institute, said: “With responsibility for over one third of all asset owner capital globally, the AO100’s influence on other investors and society is growing and becoming more important.”
According to the research, the AO100 have become more prominent in integrating ESG and being more active owners, including aiming for real-world impacts in their investment strategies. These strategies increasingly include new elements, such as: factoring in member views; adopting new investment benchmarks; reporting on the impacts of their investment strategies (via the TCFD1 framework and the SDGs2); reducing carbon emissions from portfolio holdings and investing in assets that will support the transition towards a low-carbon economy; and devising and implementing climate transition strategies that align with the Paris Agreement.
Roger Urwin said: “At the larger end of the AO100, funds are pursuing so-called universal owner strategies which contribute to safeguarding the financial system and addressing other systemic risks, including climate change, without sacrificing risk-adjusted returns. This is consistent with a new era of ESG – which we call ESG 3.0 – that is fundamentally different from previous versions in that it includes real-world impacts on the environment and society, while delivering better outcomes for beneficiaries.”
The research indicates that universal owner strategies are highly collaborative and involve working through industry groups, such as the Principles for Responsible Investment (PRI) and Net-Zero Asset Owner Alliance, and improve long-term financial outcomes, through beta (market return) rather than alpha (securities relative return).
Roger Urwin said: “Increasing numbers of the AO100 are following nation states and corporations in declaring their intention to align with the Paris Agreement and be net-zero by 2050, via their investment portfolios. This is an ambitious goal and will require new types of investment mandates that explicitly incorporate a third dimension of investment after risk and return: impact. These three-dimensional mandates (3-D mandates) will, of necessity, have to be highly innovative portfolios and engagement strategies if they are to deliver a combination of real-world impacts and improved portfolio outcomes.”
The research also highlights other current asset owner challenges, which include:
Jessica Melville, Head of Strategic Advisory, Investments at Willis Towers Watson Australia, said the relative influence of asset owners compared to asset managers continues to rise, in part through the building of bigger teams with stronger leadership. “Governance is improving but has historically lagged other financial services organisations; we suggest that there are up to 20 very large asset owners globally that are well-governed, with effective cultures, providing leadership for others as a considerable force for change. The business model of asset owners is evolving, and we can expect further saver and investor protection regulations. This leads to a very confusing picture, at least in the short term.”
| 2020 Rank | 2019 Rank | Fund | Total Assets | Primary category |
|---|---|---|---|---|
| 43 | 53 | AustralianSuper | $129,095 | Pension Fund |
| 57 | 48 | Future Fund (1) | $99,800 | Sovereign Wealth Fund |
| 85 | 89 | TCorp | $74,728 | Pension Fund |
| 89 | 76 | Nulis Nominees (Australia) Limited (6) | $72,200 | OCIO |
| 90 | 91 | First State Super (now Aware Super) | $71,972 | Pension Fund |
| 98 | 90 | BT Funds Management Limited (2) | $65,193 | OCIO |
The TAI definition of asset owners is that they:
The Thinking Ahead Institute was established in January 2015 and is a global not-for-profit investment research and innovation member group made up of engaged institutional asset owners and service providers committed to mobilising capital for a sustainable future. It has 45 members around the world and is an outgrowth of the Thinking Ahead Group which was set up in 2002. Learn more at www.thinkingaheadinstitute.org.
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential.
1 Task Force on Climate-Related Financial Disclosures
2 Sustainable Development Goals
