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March 03, 2015
Second Global Sustainable Investment Association Review Published
    by Robert Kropp

Negative screening persists as the investment strategy most often practiced, but integration of environmental, social, and corporate governance considerations into financial analysis has grown at the fastest rate over the last two years.


The Global Sustainable Investment Alliance (GSIA)—a collaboration of the world's largest sustainable investment forums, including US SIF – The Forum for Sustainable and Responsible Investment—has produced its second overview of the global sustainable investment. Collated from the regional reports published in the last year by GSIA’s member forums, the new report states that sustainable assets in the regions covered increased to $21.4 trillion since 2012, the date covered by the organization’s initial report.

The new report further states that sustainable assets now comprise over 30% of professionally managed assets in the regions covered, and that the fastest growing region has been the United States. US SIF’s 2014 Trends Report, published in November, found that sustainable assets in the US had increased by 76% since 2012, to $6.57 trillion, or 18% of all professionally managed assets. In Europe, more than half of assets under managed are invested according to some form of environmental, social, and corporate governance (ESG) criteria.

The practice of sustainable investment, according to GSIA’s report, encompasses seven practices. Negative screening—historically the oldest of sustainable investment practices, as it formed the basis of the anti-apartheid movement in South Africa for faith-based investors—remains the most common, accounting for $14.4 trillion. Excluding companies or even entire industry sectors from portfolios is generally perceived as more values-driven than financial; but with the fossil fuel divestment movement growing, perhaps that will change. That is, if those institutions choosing to divest then re-invest in some form of clean energy to help bring about a low-carbon transition of the global economy.

Of the four major strategies—in addition to negative screening, they are ESG integration, corporate engagement and shareowner action, and norms-based screening—the one experiencing the most rapid growth has been integration. In the US alone, according to US SIF, “The assets managed at the start of 2014 by investment firms considering ESG issues grew more than three-fold—from $1.4 trillion at the start of 2012 to $4.8 trillion.” The only strategy to grow at a more rapid rate globally was sustainability-themed investments, described by the Eurosif, the European forum, “as one of the purest, in the sense that these assets are targeting certain themes around sustainability, as opposed to applying extra-financial (ESG) criteria or norms to a standard portfolio of assets regardless of the industry or activity.” But sustainability-themed investing remains a tiny part of the overall picture, with only $166 billion invested according to the strategy.

When Eurosif published its regional report last year, it devoted a section to the phenomenon of impact investing, describing it as “a peripheral strategy…that has not yet realized its full potential.” Although the impact investing brand differs in some ways from what is commonly practiced as community investment, I think GSIA was accurate in describing the former “as targeted investments, typically made in private markets, aimed at solving social or environmental problems.” While practitioners and asset classes may differ, the value of impact investing seems to be in its offering an alternative to philanthropy for foundations and high net worth individuals.

“The growth in global SRI reflects the consensus among investors that accurate valuations and proper risk management require greater disclosure and consideration of ESG issues such as climate change, human rights, consumer protection and health and safety,” the report concludes. “Managers are also using ESG criteria to identify opportunities to invest in sustainable businesses that are involved in energy efficiency, green infrastructure, clean fuels and other sectors that provide adaptive solutions to some of the most challenging issues of our time.”

 

 
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