Clean technology/renewable energy are the preferred responsible investing optionsA new report from Cerulli Associates provides analysis of recent events and trends shaping over 40 asset marketplaces worldwide, and a single source of coverage of the global retail and institutional asset management marketplaces.
February 1, 2023, LONDON—The majority of European insurers plan to increase their allocations to emerging market debt and emerging market equity funds over the next 12 to 24 months, according the latest Cerulli Edge—Global Edition. Demand for private assets is expected to continue, even if opportunities in the traditional fixed-income space increase due to interest-rate rises and inflation. Insurers’ responsible investing will focus on clean technology and renewable energy.
More than half of the insurers in the U.K., France, and Germany, plan to increase their allocations to both emerging market equity and emerging market debt over the next 12 months. For Europe overall, 53% expect to increase their allocations.
“Both emerging market equity and emerging market debt are set to see high levels of outsourcing, with insurers turning to third-party asset managers for new commitments in emerging market equities in particular,” says Justina Deveikyte, director, European Institutional Asset Management Research at Cerulli.
When it comes to responsible investing, clean technology and renewable energy are the themes that insurers in all but one of the six European countries (the U.K., France, Italy, Germany, Switzerland, and the Netherlands) will be targeting over the next two years. The only market where it will not be the top responsible investment theme is the U.K.; three-quarters insurers anticipate targeting climate change/carbon reduction.
Around half of the European insurers report on their exposure to energy transition and physical climate risk, as well as the carbon footprints of their investment portfolios. Biodiversity is a responsible investment theme gaining attention.
“European insurance companies are increasingly committing to net-zero strategies. Large insurers that were previously lagging are now signing up and the commitment is starting to filter down to tier-2 insurers,” says Deveikyte, noting that managers unable to implement net-zero targets are less likely to be considered for mandates.
Diversity and inclusion (23%) and housing/community development (27%) rank lowest among European insurers in terms of key responsible investment themes.
In Asia, net flows into environmental, social, and governance (ESG) funds were hampered in 2022 by weak investor sentiment and stricter disclosure rules across various markets in the region. Net flows into locally domiciled ESG funds during the first half of the year were just 7.6% of the total amount raised during 2021. This followed three years of strong assets under management growth and a slew of ESG fund launches. However, Cerulli expects demand for sustainable investments to pick up as markets recover and the industry adjusts to new guidelines.
In the U.S., many asset managers that have built their businesses on the backbone of the mutual fund structure are now considering solutions across a broader range of asset classes and vehicle structures. The aim is to provide scalable solutions that can be customized at the individual investor level. For example, building out new vehicle offerings is a high priority for 69% of asset managers and 79% view exchange-traded funds as a large opportunity.
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Headquartered in Boston with fully staffed offices in London and Singapore, Cerulli Associates is a global research and consulting firm that provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments.