Retail investors in the U.S. continue to represent the counter trend for ESG investments, according to the latest research from Morningstar.

The third annual Voice of the Asset Owner Survey 2024, which compiles feedback from 500 global institutional investors that collectively manage more than $18 trillion, shows a growing appetite for the specific factors behind ESG investing.

According to the report, 67% of asset owners surveyed believe ESG has become more or much more material over the past five years.

“We believe this is driven by improved understanding of the linkage between ESG issues and company performance, increased action by regulators, and higher levels of ESG awareness among investors and issuers,” said Tom Kuh, head of ESG strategy at Morningstar Indexes.

Of the 500 asset owners survey, 200 are from the Asia-Pacific region, 200 are from Europe and 100 are from North America, which is the region that has been slowest to embrace ESG investing, even at the institutional level.

By region, 71% of the asset owners from the Asia-Pacific believe ESG factors have become more material, followed by 68% of European asset owners and 61% of North American asset owners.

Every asset owner surveyed is allocating at least a portion of their assets to strategies that account for ESG factors, and the percentage of asset owners with more than half their total assets reflecting ESG considerations has increased each year, from 29% in 2022 to 34% in 2023 and 35% in 2024.

Kuh said a key finding is the way investors are homing in on specific considerations under the broader ESG umbrella.

“The observations are that the data, ratings and indexes have improved in the past five years,” he said. “Four times as many asset owners say they’re a lot or somewhat better, and those sentiments paint a picture of progress and growth, rather than the sense that this is all in retreat and retrenchment.”

ESG Grows in Significance

Instead of looking at ESG as a general concept, the report looked at specific factors driving investments and found that 64% feel environmental factors have become more material over the past year, which is up from 52% a year ago.

Additionally, more asset owners in 2024 (58%) said that social factors have become more material in the last year, up 20 percentage points from 38% in 2023.

Governance factors are more material in the eyes of asset owners this year as well, with 55% stating they have become more material compared with 43% in 2023.

Meanwhile, the findings show a separation between institutional investors and smaller retail-class investors when it comes to ESG.