European pension funds, as well as insurers, are taking different paths to decarbonisation, with size and location among the factors at play, according to Cerulli.

The July issue of The Cerulli Edge – Global Edition found that some pension funds and insurers are divesting from assets that are not sustainable and working with asset managers to create new investment vehicles, others are opting not to sell their holdings, but instead engage with the companies. The thinking behind the latter approach is that divesting could result in the assets being owned by less engaged owners, resulting in potentially less change.

Despite these differences, decarbonisation and achieving net zero are key goals for most institutional investors, according to Cerulli’s research. Nearly 92 per cent of asset owners are committed or are planning to commit in the near term to reaching net zero. Furthermore, for 66 per cent, an asset manager’s commitment to net zero is a very important factor when hiring.

The drivers for decarbonisation and incorporating environmental, social, and governance (ESG) considerations into investment decision-making include mitigating risk, EU legislation, fiduciary duty, and reflecting stakeholders’ interests.

“Cerulli’s research indicates that insurers’ response to decarbonising fixed income can be segmented by size of company and location. Smaller companies are not under as much scrutiny as larger companies, resulting in less urgency to decarbonise,” Cerulli Associates managing director, Europe, André Schnurrenberger, said.

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