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What the S in ESG means for Sovereign Wealth Funds

New research from the International Forum of Sovereign Wealth Funds reveals, for the first time, how sovereign wealth funds think about the social dimension – the S pillar – of environmental, social, and governance (ESG).

The study offers three notable contributions to our understanding of this topic:

  1. An introduction to what the “S” of ESG means and why it matters to long-term investors;
  2. An exploration of real-world practices across the global sovereign wealth fund community, focusing on measurement and reporting based on a survey of IFSWF members;
  3. A description of best practices at various stages of integrating S-pillar themes into the decision-making process.

The research reveals that sovereign wealth funds face common challenges when implementing their approaches to social issues. Not only are these conceptually challenging for sovereign wealth funds to define, but sovereign wealth funds also struggle to quantify the financial materiality of social factors. A lack of high-quality metrics, common standards and data also hamper their efforts to address the S pillar. The report also illustrates that sovereign wealth funds need to consider multiple steps in implementing an approach to considering social issues. Such a strategy could include defining its objectives, relevant social topics, integration into risk and investment approaches, as well as reporting and monitoring. 

This report is the first ever to document sovereign wealth funds’ attitudes to the S pillar and outline their approaches to social issues across early, developing and advanced stages of the implementation journey. The report aims to provide accurate, data-driven insights directly from sovereign wealth funds and to serve as a helpful reference point for sovereign wealth funds and other investors who are just starting to consider implementing a specific approach to the S pillar.

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