Global sustainable investments have grown to $35.3 trillion in professionally managed assets and now represent 36% of all such assets across the US, Canada, Japan, Australasia and Europe, according to the Global Sustainable Investment Review 2020, published on Monday (July 19).
The number marks a 15% growth over two years, with Canada experiencing the largest increase in absolute terms (48% growth), followed by the US at 42%, and Japan at 34%.
"This growth is being fuelled by rising consumer expectations, strong financial performance and the increasing materiality of social and environmental issues - from biodiversity to racial equity to climate change," Simon O'Connor, chief executive at the Responsible Investment Association Australasia, said during a media briefing held on Thursday (July 15).
He noted that the most striking findings from this year’s report were the variation in the scale and growth of investments across different regions, as well as the rapid developments that are reshaping and redefining environmental, societal and governance (ESG) investing best practices.
Canada is now the market with the highest proportion of sustainable investment assets at 62%, followed by Europe (42%), Australasia (38%), the US (33%) and Japan (24%). In Asia, Japan saw the highest compound growth rate between 2014 to 2020, in terms of sustainable investing assets.
“In Japan, which is a little bit different from the US, the most important driver for the investment is policy and regulatory changes,” said Masaru Arai, chairman of Japan Sustainable Investment Forum, at the same online briefing.
These included "the national action plan on business and human rights, and also the revision of the stewardship code and corporate governance," he said.
The report did not provide specific data on China, but it noted that regulatory and policy drivers play a key role in driving sustainable investment in China, in addition to pressure from overseas shareholders and clients.
Thomas Kwan, chief executive of Harvest Global Investments and head of ESG for its parent company Harvest Fund Management, told AsianInvestor that foreign investors faced challenges implementing onshore ESG strategies in China due to the lack of quality data from mainland companies and different sustainable investment approaches.
“We are more or less in the middle of two extremes: purely ESG philosophy and ESG data for trading purposes,” he added, noting that a sustainable investing approach in China should always consider short-term financial performance.
ESG INTEGRATION TOPS
A combined $24.6 trillion of assets under management were deployed to ESG integration, making it the most common sustainable investment strategy.
Other popular strategies include negative or exclusionary screening ($15.9 trillion), followed by corporate engagement/shareholder action ($10.47 trillion).
Investment firms and institutional asset owners representing $2 trillion in assets filed or co-filed shareholder resolutions on ESG issues in 2018 to 2020, according to Lisa Woll, chief executive at US SIF.
Investors in the US were driven to take ESG more seriously “as a result of Covid, as a result of the racial justice protests, as a result of really experiencing an administration that had virtually no interest in improving conditions for most people in the US – multiple crises, health and racial and social and economic,” she said.
RISING RETAIL INVESTORS
Although institutional investors tend to dominate the financial market, interest by retail investors in sustainable investing has been steadily growing, the report found. In 2012, institutional investors held 89% of assets compared with 11% held by retail investors. Since 2018, however, the retail portion took up a quarter of total sustainable investing assets.
Last week, Goldman Sachs launched an exchange-traded fund (ETF) into an already crowded market of ESG investing products that cater to both retail and institutional investors.