Responsible investing expanded 34% worldwide between 2016 and the end of 2017, according to the latest data from the Global Sustainable Investment Alliance (GSIA).
Investing in environmental, social and governance (ESG) strategies grew to $30.7 trillion from $22.9 trillion in the review period, GSIA said in its fourth biennial Global Sustainable Investment Review published this week. By comparison, the STOXX® Global 1800 Index rose 31% in the two-year period.1
Sustainable investing has become standard among many of the world’s largest asset owners and asset managers. But retail investors are becoming increasingly aware of the benefits of managing money responsibly too. Helping their move is the emergence of financial products and vehicles that match and facilitate responsible policies.
Europe tightens definitions
ESG’s market share of professionally managed assets grew in the two-year period in all regions except Europe, where Eurosif, a regional responsible investment membership organization, tightened its definition of sustainable investing in 2016.
In anticipation of stricter standards by the European Commission and the European Parliament of what constitutes sustainable investing, some European asset managers reported lower sustainable asset values for 2017, GSIA said.
As a result, sustainable investing now accounts for 49% of all professionally managed assets in Europe, down from 53% at the end of 2015, even if the absolute value of the assets grew by 11%, to top 12 trillion euros at the end of 2017.
The proportion of assets committed responsibly in the US, where definitions didn’t change, increased to 26% of the total from 22%. Their total value grew 38% to $12 trillion in the period under review. In Japan, the share of responsible investments jumped to 18% from 3.4%.
In Australia and New Zealand, where the pool of ESG-managed assets has had a compounded annual growth rate of 50% in the last four years reviewed, their ratio jumped to 63% of total assets, from 51% in early 2016.
Europe now accounts for 46% of global SRI assets, down from 53% in 2016, the report showed. The US follows with a 39% share.
All strategies grow
All but one of the seven GSIA-defined categories within sustainable investment grew between 2016 and end-2017. Almost $20 trillion are managed in negative/exclusionary screening strategies, which exclude certain sectors or practices from a portfolio based on ESG criteria: a 31% increase from 2016. The second-most popular strategy is ESG integration – the systematic and explicit inclusion of ESG factors into financial analysis, which grew 69% to $18 trillion.
The fastest-growing strategies were also the three smallest ones: positive or best-in-class screening, sustainability-themed investing, and impact or community investing. While the smaller pools of assets can be expected to grow more rapidly, the trend also shows that responsible investing is branching out into diversified approaches.
The only strategy to contract in the survey’s period was norms-based screening, or the evaluation of investments against minimum standards of business practice, which fell 24% to $4.7 trillion. Europe dominates in this strategy, providing 77% of the world’s assets.
Institutional vs. retail
While institutional investors still dominate the sustainable investing market, interest by individual investors continues to grow. Global retail responsible investments rose to 25% of the total tally, up from 20% two years earlier and from 11% when the survey started in 2012, GSIA said. The rest is made up entirely of institutional money.
Retail demand has been behind the launches in recent months of structured products and exchange-traded funds that track indices such as the EURO iSTOXX® Environmental 50 Equal Weight Index, iSTOXX® Europe ESG Climate Awareness Select 50 Index or the EURO iSTOXX® ESG-X & Ex Nuclear Power Multi Factor Index.
The report collected asset class information for Europe, the US, Japan and Canada. Collectively, 51% of responsibly-managed money in these regions was allocated to public equities while 36% was in fixed income.
Sustainable investing through passive vehicles
STOXX has advanced sustainable investing since 2001 and now counts over 150 indices targeting ESG, low carbon and climate impact strategies. In February this year, the first European ESG futures were listed on Eurex, tracking the STOXX® Europe 600 ESG-X Index, EURO STOXX 50® Low Carbon Index and STOXX® Europe Climate Impact Ex Global Compact Controversial Weapons & Tobacco Index.
- STOXX® Europe 600 ESG-X Index
- EURO STOXX 50® Low Carbon Index
- STOXX® Europe Climate Impact Ex Global Compact Controversial Weapons & Tobacco Index
- EURO iSTOXX® Environmental 50 Equal Weight Index
- iSTOXX® Europe ESG Climate Awareness Select 50 Index
- EURO iSTOXX® ESG-X & Ex Nuclear Power Multi Factor Index
1Net returns in dollars.