Strong investor demand and rising concern about climate change have led to growth of 25% in assets under management (AUM) in responsible or “sustainable” investments during the past couple of years, according to a recent report by the Global Sustainable Investment Alliance (GSIA).
The report, which details the global landscape for responsible investing (RI), indicates that $22.9 trillion (all figures in U.S. dollars) of assets is being professionally managed under RI strategies worldwide. This amount represents an increase of 25% since 2014, pushing RI’s market share to 26% of all professionally managed assets globally, the GSIA report states.
Over that period, the region showing the fastest growth has been Japan, followed by Australia/New Zealand, and Canada. In terms of AUM, Europe is the biggest market for responsible investing, followed the U.S. and Canada, respectively.
“The global growth in sustainable investing demonstrates the increasing demand among investors — both institutional and retail — for greater disclosure and consideration of ESG issues,” the report says. “The consideration of fiduciary duty has been an important driver for sustainable investing, indicating that [RI] is becoming more accepted by a wider audience than in years past.”
That concern about climate change has been a driving force in the growth of sustainable investing, the report adds: “New green financing products have appeared, and climate-aligned bonds are continuing to show strong demand. New markets, such as China, are contributing to this rise as well. Finally, pension funds around the world are demonstrating that they view sustainable investing as critical to long-term investing and risk mitigation.”
Regarding investment strategy, the most popular approach is “negative screening,” which accounts for $15.02 trillion in assets, followed by environmental, social and governance (ESG) integration ($10.37 trillion) and corporate engagement/shareholder action ($8.37 trillion), the report says.
In Canada, the RI market has grown by 49% to $1.09 trillion from $729.0 billion in two years, the report states: “In relative terms, 38% of total professionally managed assets use [RI] strategies. The dominant sustainable investing strategy in 2016 was ESG integration, followed by corporate engagement and shareholder action.”
The top ESG issues in Canada 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% since 2014,” the report says.
“Recent policy developments in Canada could help drive further growth in responsible investing,” the report adds, pointing to new pension disclosure requirements.
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