EMEA investors shift allocations changes in markets and climate impact portfolio construction

• Institutional investors across EMEA expect to make portfolio updates to navigate change across markets, the environment and communities, according to Nuveen, the global investment manager with over $1 trillion in assets under management.
• Almost two thirds (64%) of investors in EMEA are more concerned today about the possibility of extreme events disrupting investment strategies than they were two years ago and 50% say fundamental long-term market dynamics have lost relevancy.
• The findings are from Nuveen’s second annual EQuilibirum Global Institutional Investor Study, which surveyed 800 institutional investors, including corporate and government pensions, insurance, endowments and foundations, superannuation funds, sovereign wealth funds, central banks, and consultants from over 20 countries.

EMEA continues to lead the global charge on climate

The most significant understanding among EMEA investors is the inherent link between climate risk and investment risk. 84% of investors and consultants in the region agree that the transition to a low-carbon economy is inevitable and 87% believe the transition will present new investment opportunities.

EMEA has led is leading the way in terms of ESG, as 79% of asset owners say they already consider ESG factors when making investment decisions and 12% plan to within a year.

Investors across APAC are quickly catching up to this rationale, with 71% already claiming an embedded ESG consideration but 20% planning to take on considerations over the next year.

Two fifths (44%) of EMEA investors also report their investment policy is well practiced compared to 23% in NORAM and 34% in APAC. 79% have made a commitment to net zero or plan to within two years.

Looking to Diversity, Equality and Inclusion, 45% of EMEA asset owners and consultants have set clear goals and targets for DEI hiring, retention, and talent development while another 30% are considering these steps. Investors also see the opportunities presented as 66% of asset owners and consultants are considering or seeking investment opportunities that address DEI issues.

Amy O’Brien, Global Head of Responsible Investing at Nuveen, said: “The recent IPCC report announced that the world has a brief and rapidly closing window to adapt to climate change, and that we are on track for warming of 3 degrees Celsius. The impacts associated with this level of warming will be highly disruptive to supply chains and this reliance on fossil fuels makes the global economy and energy security vulnerable.

“However, these risks and the major shifts to renewable energy sources and more resilient infrastructure provide major opportunities for institutional investors to lead the way, to help mitigate climate risk whilst targeting compelling returns. We are seeing first-hand clients in Europe adopting a responsible-first mindset, with climate and social challenges two of the biggest drivers for this.”

Alternative credit and private equity at heart of asset allocation changes

With slowing growth, increased volatility, upward pressure on interest rates and rising inflation, investors face a challenging environment. 58% of investors in EMEA are taking steps to combat the risk of increasing inflation over the next 12 months.

With traditional fixed income assets no longer producing robust income, 76% of EMEA investors say they plan to expand their reach for yield over the next two years. The vast majority (60%) are looking to alternative credit.

Infrastructure and private equity are most likely to see allocation increases, with 37% and 35% respectively of investors in EMEA suggesting they will be increasing allocations over the next two years. Among those looking to increase allocations to private equity are public pensions, 42% of which have claimed they plan to increase investment in PE in the next year.

Simon England-Brammer, Head of EMEA and APAC Institutional said: “The complexity and pace of change which markets, the environment and communities are experiencing require institutional investors to be more flexible in their approaches and to rethink traditional investment strategies. The world is going through a number of major shifts, and institutional investors are seeking guidance on how to navigate these - both through a responsible lens to direct capital towards positive change, and through a risk lens to sustain and protect investment returns.

“At Nuveen we are committed to rethinking the future and developing investment solutions that can flex to the changing objectives of investors. Whether it be addressing climate goals or re-evaluating income objectives, our investment teams are working with clients every day to help them meet their near-term obligations in an uncertain market while also positioning for the systemic, longer-term changes that are to come.”