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Central banks, wealth funds going greener and more activist

The COVID-19 pandemic is accelerating a shift by central banks and the sovereign wealth and public pension funds to greener and more activist investment strategies. The Global Public Investor survey by think-tank Official Monetary and Financial Institutions Forum (OMFIF) sampled 102 institutions. This is overseen as a combined $7 trillion this year to track how the pandemic and other long-term trends are affecting them.

The findings of the survey showed that the scale and speed at which environmental, social and governance (ESG) factors were now driving investment decisions. OMFIF’s Chief Economist Danae Kyriakopoulou said that there has definitely been an acceleration due to COVID. At the beginning of the pandemic, they thought there would be a focus on the short-term. But actually, there has been this realisation that their financial systems are so vulnerable to things outside the financial world.

As well as a store of wealth for future generations, sovereign wealth funds are often used by countries during periods of upheaval. For the first time since OMFIF started asking about ESG, the majority in all three categories of global public investors (GPIs) said that they now implement it in some way. This differed widely between types of institution, with all pension funds implementing ESG criteria, compared with around two-thirds of sovereign funds and just over half of central banks. Central banks made up around 60% of OMFIF’s survey sample this year.

The survey also showed a trend for more active ownership, such as sovereign wealth and public pension funds. Rather than just excluding polluters, many funds are now specifically buying companies or projects that transition to more sustainable practices from dirtier or less responsible ones. An Invesco survey earlier this month found the majority of sovereign funds think financial markets are fully pricing in the long-term implications of climate change. Policy-makers and investors should not be surprised by such rulings or decisions. Even though they are radical and mark a ‘tipping point’, it is clear that momentum for change has been building.

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