'An industry in transition': Sustainable investments now account for one-third of global market
Sustainable investment approaches that consider environmental, social and governance (ESG) factors in portfolios have grown by 15% over the last two years and now account for more than a third of professionally managed assets across all major markets.
That is according to the Global Sustainable Investment Alliance’s (GSIA) biennial Global Sustainable Investment Review. The report reveals that assets under management through ESG funds and approaches now total $35.3trn, equal to 36% of all professionally managed assets from the United States, Canada, Japan, Australasia and Europe.
According to the report, investment is now an “industry that is in transition” with ESG approaches become more commonplace across portfolio selection and management.
“This year’s report highlights an industry that is in transition, with rapid developments across regions that are resetting expectations of sustainable investment, with an emphasis on moving the industry towards best standards of practice,” the European Sustainable Investment Forum’s executive director Victor van Hoorn writes in the foreword to the report.
“Increasingly, there are expectations that sustainable investment is defined not just by the strategies involved, but by the short- and long-term impacts that investors are having from their sustainable investment approach.”
According to the report, Canada’s investment market is the one with the highest proportion of sustainable investment assets at 62%, followed by Europe (42%), Australasia (38%), the United States (33%) and Japan (24%). However, the US and Europe still represent more than 80% of global sustainable investing assets.
Canada also experienced the largest increase in its sustainable investment market over the past two years, growing by 48%. In comparison, the US market grew by 42%, Japan by 34% and Australasia by 25%.
Europe actually reported a 13% decline in the growth of sustainable investment assets over the recorded time period. However, this was due to a change in measurement methodology as part of revised definitions of sustainable investment that have since been introduced across the EU as part of the European Sustainable Finance Action Plan.
According to the report, the most common sustainable investment strategy is ESG integration. Investors also commonly used negative screening, corporate engagement and shareholder action, norms-based screening and sustainability-themed or green bonds.
With a report from PwC warning that up to £400bn needs to be unlocked and funneled into green infrastructure to meet UK’s net-zero target, and the ongoing global economic recession as a result of the Covid-19 pandemic, many investors are now re-examining approaches to finance to combat long-term risks.
The global issuance of sustainable and green bonds totalled a record $99.9bn (£75.5bn) in the second quarter of 2020, with investors increasingly focusing on ESG risks and seeking to play their part in the green recovery movement.
That is according to the latest in-depth sector analysis from Moody’s. The analysis revealed that sustainable bond issuance was 65% higher between April and June than between January and March, with social bonds and sustainability bonds leading the trend. While green bonds are used to finance projects on the basis of their positive environmental impacts, social bonds finance activities intrinsically linked to social sustainability and sustainability bonds cover a mix.
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