World’s largest asset owners adopting ‘ESG3.0’ strategies as growth continues, says The Thinking Ahead Institute 

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The world’s 100 largest asset owners grew by 6 per cent last year to reach USD20.1 trillion, according to research from The Thinking Ahead Institute (TAI). 

The Government Pension Investment Fund (GPIF) of Japan continues to be the world’s largest asset owner, with USD1.6 trillion in assets under management, followed by the Government Pension Fund of Norway (GPF), and China Investment Corporation. 

More than half of the total assets under management are owned by the 20 largest funds, which collectively manage USD11 trillion, according to the ‘Top 100 Asset Owners’ (AO100) report.

Roger Urwin, co-founder of the Thinking Ahead Institute, says: “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.”

Pension funds remain the single biggest group of asset owners accounting for over 60 per cent of assets, followed by sovereign wealth funds, owning 32 per cent, and outsourced chief investment officers (OCIOs) and master trusts with a combined 7 per cent. 

Urwin says: “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.”

A ‘universal owner’ is a large institution investing long-term in widely diversified holdings across multiple industries and asset classes, meaning that overall economic performance matters more for the future value of their portfolios than the performance of individual companies or sectors.

“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,” says Urwin.

Relatively few asset owners in the study claim to be universal owners, with the list including GPIF from Japan, GPF from Norway, and CalPERS from US.

Universal owner strategies tend to be “highly collaborative” and involve working through industry groups, such as the Principles for Responsible Investment and Net-Zero Asset Owner Alliance, and improve long-term financial outcomes through beta rather than alpha.

According to the research, most large asset owners currently find hurdles to managing their funds in line with universal ownership principles, including not seeing themselves as sufficiently large, not having the necessary long-term orientation, or not having the requisite leadership buy-in to operate yet in such a way.

Nevertheless, asset owners across the board are paying more attention to ESG integration and becoming more active owners, including aiming for real-world impacts in their investment strategies. 

“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,” adds Urwin.

He says that this is an “ambitious goal” and will require new types of investment mandates that include impact as a “third dimension of investment after risk and return”.