Globally, the adoption of environment, social and governance (ESG) issues remain at an all-time high, and has inched even higher in the Europe, Middle East and Africa (EMEA) region, according to a recent study.

The EMEA region is the leader with 94% of respondents adopting ESG, up one percentage point from last year and just ahead of those in Asia-Pacific (93%) and North America (75%), both unchanged from last year, finds Capital Group’s fourth annual ESG Global Study, whose respondents include institutional investors and global intermediaries from 24 countries.

As well, 50% of surveyed investors say they expect to increase allocations to multi-thematic ESG strategies over the next two to three years, with strong appetite from Asia-Pacific, where 55% are set to raise allocations.

Respondents cited diversification (64%), the potential for better risk-adjusted returns (50%) and broader ESG impact (49%) as core benefits of multi-thematic strategies over single theme strategies.

AI rise, risk

While investors expect to turn to artificial intelligence (AI) to address data challenges, the study notes, its rapid rise is perceived to pose new material ESG risks to investment decisions.

Similar to past surveys, ESG data consistency and reliability are still viewed as significant challenges to adoption (53%). Only 10% of respondents use AI now to analyse ESG data, but 53% plan to use it in the future, rising to 60% among investors in Asia-Pacific.

Six out of 10 investors view the impact of AI as the most material social issue over the next 12 months, while 54% are concerned about the environmental impact from AI’s power-intensive operations.

ESG headwinds, tailwinds 

Nearly six in 10 respondants (58%) think investors, the study shares, will maintain a long-term commitment to ESG despite current geopolitical and macroeconomic headwinds.

And a majority of respondents say the pace of sustainable policy implementation (57%) and speed of ESG regulatory change (56%) present tailwinds that will support faster progress on ESG.

“ESG adoption has remained high, with nine in 10 investors in the study identifying as ESG users,” says Jessica Ground, Capital Group’s global head of ESG. “And over half of respondents (57%) indicate plans to increase allocations to ESG funds in the next 12 months.

“New areas of interest like AI have emerged. Investors are taking tentative steps to use AI as a tool to tackle ESG’s data challenges. AI as an investment opportunity, however, has prompted greater deliberation of related ESG risks. With an ability to take a more granular view on opportunities and risks, most respondents view active managers as well-equipped to navigate ESG headwinds and overcome challenges.”