GLOBAL, Tuesday 23 November, 2021 – The world’s 100 largest asset owners (AO100) grew by 15.7% last year to reach US$23.5 trillion, according to new research from the Thinking Ahead Institute (TAI). Pension funds remain the single biggest group of asset owners globally accounting for 58.1% of assets, followed by sovereign wealth funds (34.7%) and Outsourced Chief Investment Officers (OCIOs) and Master Trusts combined (7.2%).
Roger Urwin, co-founder of the Thinking Ahead Institute, comments: “This relatively small group of investors are right on the front line of the investment community’s fight to become net zero, and their power is even more concentrated among the top 20, which are responsible for nearly US$13 trillion.”
According to the research, there are three accredited net zero committed organisations in the top 20 and only 14 in the top 100.
Roger Urwin said: “While the pledges from Glasgow Financial Alliance for Net Zero (GFANZ) organisations are critical, the largest asset owners hold the ‘keys to the castle’. Their allocations, ownership muscle and trickle-down influence will be important in opening the door to net zero pathways.
“But to successfully manage the complexity and challenges of sustainable investment and net zero pathways, asset owners will need to develop enhanced governance and investment sophistication.
“The Glasgow COP summit has highlighted how asset owners can work together as part of a wider collaboration framework to produce better long-term outcomes for the whole system.”
According to the research, the development of systems-leadership** practices – those that acknowledge the size and interconnectedness of the climate challenge – will support much-needed innovation and collective action. However, asset owners will need to face up to and overcome numerous impediments, including narrow interpretations of fiduciary standards, that have pushed them to maintain established practices.
Roger Urwin added: “The research highlights how some asset owner groups have attempted to overcome these impediments by ‘maturing’ their governance, investment and sustainability models and revamping their organisational purpose and architecture. As part of this they have built their capacity to innovate in readiness for the transformational change that is imminent, and other asset owners should take note.”
The new research also covers other key themes for asset owners to address, which include:
- Lower future expected returns driving funds to adapt their investment model
- Broader stakeholder management becoming a much bigger task to address
- Diminishing reliance on the networks of external asset managers
- A rise in regulatory requirements as a factor influencing their practices, particularly in ESG and stewardship
- Building more robust technology platforms to transform over-abundant data into value-adding intellectual capital.
Samar Khanna, co-author of the research, commented: “The challenges asset owners face are immensely broad and deep. We are concerned that the resources of the sector will be stretched by having so many strands to cover. The need for clear-eyed strategy has never been more important.”
Roger Urwin added: “This is a defining moment for asset owners and it’s decision time. They can stay in their narrow mandates or step up with a systems-leadership mindset to play a galvanising industry role that unleashes a torrent of net zero aligned capital.”
*The investment ecosystem is defined by the network of organisations and stakeholders that connect the investment industry and the technologies, forces and value chains that drive their inter-actions.
**Systems-leadership is defined by efforts to collaborate and find joint solutions to common problem based on an understanding that everything connects and incentives and behaviours matter.
About the Thinking Ahead Institute
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 changing and improving the investment industry for the benefit of the end saver. It has 45 members around the world and is an outgrowth of Willis Towers Watson Investments’ Thinking Ahead Group, which was set up in 2002.
About Willis Towers Watson
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. Learn more at willistowerswatson.com.