The Global Sustainable Investment Alliance (GSIA),comprised of the seven largest sustainable investment membership organizations in the world, released The Global Sustainable Investment Review 2014 in February of this year. The report, which measures sustainable investments in all asset classes, shows that global sustainable investing assets grew 61% from $13.3 trillion in 2012 to $21.4 trillion in 2014. It also found that sustainable investing strategies increased from 21.5% to 30.2%.
So what exactly is sustainable, or responsible, investing? Sustainable investing is an investment approach that takes into consideration environmental, social, and governance (ESG) influences in portfolio selection and management.
Europe, the United States, and Canada make up 99% of the global sustainable investing assets identified in the Review. The Review shows that these geographic areas have many overlapping sustainable investing strategies. More specially, it found:
- The most common sustainable investing strategy used globally is negative/exclusionary screening, affecting $14.4 trillion in assets. This is the dominant strategy in Europe.
- ESG integration, the systematic and explicit inclusion by investment managers of ESG factors into traditional financial analysis, is the second most prominent strategy in asset terms, affecting $12.9 trillion in assets. This is the dominant strategy in the United States, Australia/New Zealand, and Asia.
- Corporate engagement and shareholder actions, which is the use of shareholder power to influence corporate behavior, is the third most prominent strategy, affecting $7.0 trillion in assets. This is the dominant strategy in Canada.
- Impact investing, the investments typically made in private markets aimed at solving social or environmental problems, is a small but important aspect for sustainable investing in all the markets studied.
- Sustainable investing represents a significant share of the market in Europe, where more than half of professionally managed assets practice an ESG strategy, and also in Australia, the United States, and Canada, where its share of the market ranges from 17% to 31%.
- In many of these markets, public policy and regulatory changes are ongoing. New policies and changes can increase the level of transparency of corporations on various environmental, social and governance factors and support shareholder engagement.
According to Lisa Woll, CEO of US SIF: The Forum for Sustainable and Responsible Investment, the Review shows “…that sustainable investment strategies are being applied across asset classes to promote corporate social responsibility, build long-term value for companies and their stakeholders, and foster businesses that will yield community and environmental benefits.” She adds that she is “heartened” that so many organizations that make up the GSIA are now “working towards legislative and regulatory changes that allow for more equitable and transparent financial markets.”
Read the full report here.