Central banks and wealth funds have become more environmentally friendly and more radical-Reuters survey

Mark Jones

LONDON (Reuters)-One of the largest annual conduct surveys shows that the COVID-19 pandemic is accelerating the shift of central banks, sovereign wealth and public pension funds to greener and more aggressive investment strategies.

The Global Public Investor Survey conducted by the Think Tank Official Monetary and Financial Institutions Forum (OMFIF) this year sampled 102 institutions with a total of $7 trillion in supervision to track the impact of the pandemic and other long-term trends on them.

The survey results seen by Reuters before the announcement on Wednesday showed that environmental, social and governance (ESG) factors are now driving the scale and speed of investment decisions.

Danae Kyriakopoulou, chief economist of OMFIF, said: “Due to COVID, there will definitely be an acceleration.”

“At the beginning of (the pandemic), we thought we would focus on the short-term and quickly promote recovery. But in fact, we have realized that our financial system is very susceptible to things outside the financial world.”.

In addition to storing wealth for future generations, sovereign wealth funds are often used by countries in turbulent times.

Since OMFIF started asking about ESG, most of all three types of Global Public Investors (GPI) have stated that they are now implementing ESG in some way.

There are big differences between different types of institutions. All pension funds implement ESG standards, while about two-thirds of sovereign funds and slightly more than half of central banks.

This year, central banks accounted for approximately 60% of the OMFIF survey sample. Although many central banks do not invest in stocks or infrastructure projects, green bonds are still the most popular ESG option.

More than one-third of the banks in the survey now hold them, although some people also say that the lack of liquidity and supply of green bonds, especially the U.S. dollar, can be a headache.

Chart: ESG methods of central banks and wealth funds-https://fingfx.thomsonreuters.com/gfx/mkt/jnvweggkqvw/Pasted%20image%201626790657459.png

Tipping point

The survey also shows more positive ownership trends, especially in sovereign wealth and public pension funds. Now, many funds not only exclude polluters, but also purchase companies or projects that transition from dirty or less responsible practices to more sustainable practices.

There is still a clear gap. The survey found that about 60% of GPIs do not use ESG benchmarks—a shopping list of assets they can and cannot own—and only 8% have their own customized benchmarks.

An Invesco survey earlier this month found that most sovereign funds believe that financial markets have fully taken into account the long-term effects of climate change.

Nevertheless, Kyriakopoulou pointed out that one day in May, the Dutch court ordered Shell (LON:) to reduce emissions more quickly. Exxon Mobil (NYSE:) shareholders ignored the management’s election of two new climate-conscious board members and Chevron (NYSE:) shareholders object to its management’s support for reducing emissions.

“Policy makers and investors should not be surprised by such rulings or decisions. Although they are radical and mark a’turning point’, it is clear that momentum for change is building.”

Chart: How radical central banks and wealth funds-https://fingfx.thomsonreuters.com/gfx/mkt/znpneddqrvl/Pasted%20image%201626789998482.png