August 2021 Environment, Social and Governance (ESG) News

By August 9, 2021 No Comments

Sustainable investment assets hit $35 trillion — 36% of all managed assets

Sustainable investment assets globally grew 15% in the past two years to reach $35 trillion, according to the Global Sustainable Investment Review 2020.

With 36% of all professionally managed assets now sustainable assets, “sustainable investing has really become a major force across global capital markets,” said Simon O’Connor, chairman of the Global Sustainable Investment Alliance, during a news briefing call about the report from the GSIA and US SIF: The Forum for Sustainable and Responsible Investment.

The report defines sustainable investment as investment approaches that consider environmental, social and governance factors in portfolio selection and management across seven strategies of sustainable or responsible investment. The most common is ESG integration, followed by negative screening (excluding companies with low ESG scores), corporate engagement and shareholder action, norms-based screening (assessing companies against specific ESG standards) and sustainability-themed investment.

The biennial report found that at the start of 2020, the U.S. and Europe dominated, with 80% of sustainable assets there. Canada’s market had the highest proportion of sustainable investment assets at 62%, followed by Europe at 42%, Australasia at 38%, the U.S. at 33% and Japan at 24%.

Not all countries are trending upward. “Sustainable investing is now at a really interesting point of transition. Theirs is now a great deal of variation,” said Mr. O’Connor, who is also CEO of the Responsible Investment Association Australasia.

Some of the fastest growth rates over the past two years occurred in Canada with 48% growth, followed by the U.S. at 42%, Japan at 34% and Australia at 25% growth from 2018 to 2020.

Other markets are slowing down, but in the case of Europe and Australia, some decline is attributed to tightening of industry standards and measurement methodology, not less activity, Mr. O’Connor said.

The GSIA represents sustainable investment membership organizations in Australasia, Canada, the European Union, Japan, the Netherlands, the U.K. and the U.S.

EU turns to finance to achieve climate neutral continent

Europe plans to funnel hundreds of billions of euros into sustainable investments each year through EU banks and markets to create the first “climate-neutral continent” by 2050.

The recently published European Union’s sustainable finance framework sets out detailed milestones and measures for finance, companies and households to reach its climate goal.

It builds on a 2018 initiative which set the stage for the bloc’s ‘taxonomy’, or classification of truly green investments, and mandatory climate-related corporate disclosure.

“As the scale of investment required is well beyond the capacity of the public sector, the main objective … is to channel private financial flows into relevant economic activities,” the EU’s executive European Commission said.

As Reuters reported last month, EU states will be asked to assess by June 2023 how their financial markets contribute to eliminating the bloc’s net carbon emissions by 2050, including asset managers, pension funds, banks and insurers.

EU authorities and the European Central Bank will then calibrate the right pace for the transition by setting intermediate targets for the financial sector.

The EU executive said it will also propose changes to bank rules so that environmental, social and governance (ESG) factors are core to managing risks on their books.

The bloc’s banking watchdog will bring forward to 2023 its ongoing assessment of prudential or capital charges for exposures to environmental and social activities. Insurance capital rules may also be similarly amended.

The EU said it will consider action to improve comparability and transparency in the ESG corporate rating. Regulators have said the ratings are too opaque and could be contributing to “greenwashing” or companies overstating their green credentials to attract investors.

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