Global Boom In Responsible Investment

Global sustainable investing assets grew a dramatic 61 per cent between 2012 and 2014, to reach $21.4 trillion, mirroring the growth of responsible investment in Australasia over the same timeframe, new figures show.

The global sustainable investment market has grown substantially in both absolute and relative terms, according to The Global Sustainable Investment Review 2014, a recently released report by the Global Sustainable Investment Alliance (GSIA).

The report revealed that global sustainable investing assets rose from US $13.3 trillion at the outset of 2012 to US $21.4 trillion at the start of 2014.

As a result, the proportion of professionally-managed assets under management in the regions included in the report employing sustainable investing strategies rose from 21.5 percent to 30.2 percent.

The GSIA is comprised of the seven largest sustainable investment membership organisations in the world, including the Responsible Investment Association Australasia (RIAA) and regional sustainable investment forums from Europe, the United States, Canada, Japan and other parts of Asia.  

Simon O’Connor, the CEO of the Responsible Investment Association Australasia said the report, the most comprehensive report into the global responsible investment sector, showed a period of huge growth in responsibly managed assets across the globe.

“The surge in interest that RIAA has been mapping here in Australasia is mirrored in most major markets around the world,” he said.

“The two key drivers here are rapidly growing client demand for these products, as well as the increasing understanding that environmental, social and governance issues are ever more critical drivers of investment value.

“Members of the public globally are recognising that their savings can be put to work to deliver a strong, sustainable economy and society, whilst securely growing their retirement nest eggs, and are increasingly asking this of their investment managers.

“We anticipate this trend to only strengthen as a key driver of continued growth in responsible investment markets, ever more firmly establishing responsible investment as the benchmark of good investment practice.”

RIAA’s most recent benchmark report considered the 12 months to 31 December 2013 and compared it with Australasia’s broader financial market.

It found total funds under management in the responsible investment sector in Australia and New Zealand had increased by 13 per cent to $153 billion.

Sustainable investing, also known as responsible investing, is an investment approach that considers environmental, social and governance (ESG) factors in portfolio selection and management.

The 2014 review, like its predecessor, measures sustainable investments in all asset classes, from public equities and fixed income to hedge funds, microfinance and impact investments.

The majority of the identified global sustainable investment assets discussed in the Review— 64 per cent —are in Europe. Together, Europe, the United States and Canada account for 99 per cent of global  sustainable investing assets identified in the Review.

Other key findings include:

•   The most common sustainable investing strategy used globally is negative/exclusionary screening, affecting US$ 14.4 trillion in assets.

•   ESG integration, the systematic and explicit inclusion by investment managers of ESG (Environmental, social and governance) factors into traditional financial analysis, is the second most prominent strategy in asset terms, affecting US$12.9 trillion.

•   Corporate engagement and shareholder actions, the use of shareholder power to influence corporate behavior, including through communicating with senior management and filing shareholder proposals, is the third most prominent strategy, affecting US$7.0 trillion.

• Negative screening is the largest strategy in Europe, while ESG integration now dominates in the United States, Australia/New Zealand and Asia in asset-­weighted terms. Corporate engagement and shareholder action is the dominant strategy in Canada.

•   Sustainable investing represents a significant share of the market not only in Europe, where more than half of professionally managed assets practice an ESG strategy, but also in Australia, the United States and Canada, where its share of the market ranges from 17 to 31 per cent.

•   Although sustainable investing is not practiced on the same scale in Asia, the growth of interest in investment products that address sustainability challenges such as climate change and resource efficiency is likely to continue.

•   In many of these markets, public policy and regulatory changes are underway that could increase the level of corporate disclosure on various environmental, social and governance factors and support shareholder engagement.