Global Sustainable Investment Review
In early 2015, the Global Sustainable Investment Alliance (GSIA) released the Global Sustainable Investment Review 2014, which collated the results from the market studies of regional sustainable investment forums for Europe, the United States, Canada, Asia, Japan, and Australia and New Zealand. In the period since the last report was released, the global sustainable investment market has continued to grow, and in most of the regions covered by GSIA’s member organizations, its share of professionally managed assets has also grown. This report summarizes the status of sustainable and responsible investing in these markets at the start of 2016.
Globally, there are now $22.89 trillion of assets being professionally managed under responsible investment strategies, an increase of 25 percent since 2014. In all the regions except Europe, which tightened its definition of sustainable investing, sustainable investing’s market share has grown. In relative terms, responsible investment now stands at 26 percent of all professionally managed assets globally. Clearly, sustainable investing constitutes a major force across global financial markets.
From 2014 to 2016, the fastest growing region has been Japan, due to greater reporting and sustainable investing activity by Japanese institutional asset owners, followed by Australia/New Zealand and Canada. In terms of assets, the largest three regions were Europe, the United States and Canada, respectively.
Sustainable investing is an investment approach that considers environmental, social and governance (ESG) factors in portfolio selection and management. For the purpose of this global report and for articulating our shared work in the broadest way, GSIA uses an inclusive definition of sustainable investing, without drawing distinctions between this and related terms such as responsible investing and socially responsible investing. These are collectively referred to as sustainable investing or SRI.
Sustainable investment encompasses the following activities and strategies:
1. Negative/exclusionary screening,
2. Positive/best-in-class screening,
3. Norms-based screening,
4. Integration of ESG factors,
5. Sustainability themed investing,
6. Impact/community investing, and
7. Corporate engagement and shareholder action.
The largest sustainable investment strategy globally is negative/exclusionary screening ($15.02 trillion), followed by ESG integration ($10.37 trillion) and corporate engagement/shareholder action ($8.37 trillion). Negative screening is the largest strategy in Europe, while ESG integration now dominates in the United States, Canada, Australia/New Zealand and Asia ex Japan in asset-weighted terms. Corporate engagement and shareholder action is the dominant strategy in Japan.
Impact investing is a small but vibrant segment of the broader sustainable and responsible investing universe in all the markets studied. GSIA defines impact investing as targeted investments, typically made in private markets, aimed at solving social or environmental problems. Community investing, whereby capital is specifically directed to traditionally underserved individuals or communities, is included in this category, as is finance that is provided to businesses with an explicit social or environmental purpose.
In Europe, total assets committed to sustainable and responsible investment strategies grew by 12 percent from 2014 to 2016 to reach $12.04 trillion. Fifty-three percent of total professionally managed assets in Europe now use responsible investment strategies. Exclusionary screens remain the dominant strategy at $11.06 trillion, a growth rate of 48 percent over the past two years. Norms-based screening is the second biggest SRI approach with over $5.55 trillion in assets, a growth rate of 40 percent from 2014. Engagement and voting follows quite closely in terms of popularity, with over $4.65 trillion in assets and 30 percent growth. Using a narrower definition of ESG integration in 2016 and recalculating the 2014 ESG integration total, Eurosif found that this strategy grew 39 percent over the two-year period to reach $2.88 trillion. Impact investing is once again the fastest growing strategy with growth of 385 percent, although the assets remain small ($107.2 billion). There is increasing overlap between SRI strategies in Europe, with investment vehicles frequently using more than one. As a result, in percentage terms, the overall tally of SRI has grown by a smaller percentage—12 percent—than each of the constituent strategies.
US sustainable, responsible and impact investing continues to rise, with total SRI assets at the beginning of 2016 at $8.72 trillion, up 33 percent from $6.57 trillion in 2014. Of this, $8.10 trillion is held by institutional investors, money managers and community investment institutions applying various environmental, social and governance criteria in their investment analysis and portfolio selection. In addition, from 2014 to 2016, 176 institutional investors and 49 investment management firms with total assets of $2.56 trillion filed or co-filed resolutions on ESG issues at publicly traded companies. Eliminating double counting for assets involved in both strategies yields the overall total of $8.72 trillion, which represents nearly 22 percent all investment assets under professional management in the United States. ESG integration, the dominant strategy, affects approximately $5.8 trillion in assets.
Canada’s responsible investment market continues to experience growth. According to survey data from the Responsible Investment Association of Canada, assets managed using one or more responsible investment strategies increased from $729.0 billion to $1.09 trillion in two years, a 49 percent increase. In relative terms, 38 percent of total professionally managed assets use responsible investment strategies. The dominant sustainable investing strategy in 2016 was ESG integration ($1.05 trillion), followed by corporate engagement and shareholder action ($862.1 billion). The top three engagement issues were: executive compensation, greenhouse gas emissions and supply chain management. Impact investing continues to be a small but important category of SRI: Canadian impact investment assets now stand at $6.7 billion, growing 123 percent since 2014.
Responsible investment assets managed by asset managers, asset owners, banks and advisors in Australia and New Zealand grew substantially, both at retail levels and institutional levels, across all responsible investment strategies. In both countries combined, responsible investment assets have grown from 2014 to 2016 to reach $515.7 billion, and to a point where in Australia, sustainable investments now account for 50 percent of all professionally managed assets.
The overall market for sustainable investment in Asia has been growing more slowly than in previous periods. As of 2016, $52.1 billion in assets were managed using one or more sustainable investment strategies. When Sharia-compliant funds are excluded, the total sustainable investment assets total $34.2 billion. Sustainable investment assets have grown 16 percent since 2014, compared to 32 percent from 2012 to 2014. The most common strategies are ESG integration, representing $24.5 billion of assets, and negative/ exclusionary screening, with $18.8 billion in assets. The fastest growing strategies are sustainability themed investments with a growth rate of 198 percent, and negative/exclusionary screening with a growth rate of 14 percent.
According to the Japan Sustainable Investment Forum (JSIF), the total sustainable investment market in Japan is measured at $473.6 billion, up from $7.0 billion during the last review. The dramatic growth can be explained by a number of changes to the sustainable investment market in Japan since 2014 along with new surveys by JSIF that provided information for the first time on the sustainable investing strategies of large institutional asset owners. JSIF found that corporate engagement and shareholder action is the dominant strategy at $289.6 billion, applying to 61 percent of SRI assets. ESG integration ($120.0 billion) is the second biggest approach, with 25 percent of SRI assets. Norms-based screening ($56.0 billion) and positive screening/best-in-class ($25.1 billion) follow, with 12 percent and 5 percent, respectively.
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