By: Leo Almazora
The ESG space has been a subject of great interest but not much investment in previous years. But investors appear to be more willing to put money behind their convictions, as a new report suggests.
The recently released 2018 Global Sustainable Investment Review revealed an increase in global sustainable investment assets, which reached US$30.7 trillion at the start of 2018. That equates to a 34% increase over 2016, the last time the review was conducted.
Conducted by the Global Sustainable Investment Alliance, the report found that sustainable investing assets have grown across all regions including Europe, the US, Japan, Canada, and Australia and New Zealand.
Europe held the largest concentration of such assets with US$14.1 trillion, though their share in the region’s overall AUM dipped from 53% to 49%, possibly due to moves toward stricter standards and definitions of sustainable investing. The US was found to be the second-largest region based on its value of sustainable investing assets, with total domiciled AUM in such strategies growing by 38% from US$8.7 trillion at the start of 2016 to reach US$12 trillion at the start of 2018.
Figures from Canada also told a compelling growth story, with assets growing by 42% over the two-year period — from US$1.5 trillion at the start of 2016 to US$2.1 trillion at the start of 2018 — and now accounting for over half of professionally managed assets in the country. Over the period, assets in retail mutual funds designated or labelled as responsible investing [RI] rose 34%, from US$8.3 billion to $11.1 billion. ETF assets in such strategies more than doubled from U$98 million to US$241 million.
“The growth of assets in these products reflects the rising demand for responsible investing among individual investors within a growing product landscape,” the report said of Canada. “Survey respondents reported a total of US$435.7 billion assets managed on behalf of individual investors, compared with the US$118.5 billion survey respondents reported two years ago.”
Canadian institutional investors are also increasingly bullish on the outlook for RI, the report added, with 87% of respondents expecting moderate-to-high levels of growth in the next two years; that’s compared to 80% who had the same expectations in the last survey.
In asset-weighted terms, ESG integration was the most prominent RI strategy practiced accounting for US$1.9 trillion in Canadian assets, followed by corporate engagement. Negative screening was the most rapidly growing strategy, with assets managed in this strategy growing 64% over the two year period. While impact investing continued to be a small category, it has grown significantly by 60%, from US$9.2 billion to US$14.8 billion since 2016.
The rise of ESG integration in fixed income, the report noted, has given the asset class a greater share of responsible-investing assets compared to previous years. In 2016, public equities and fixed income accounted for 40% and 27% of RI assets in Canada, respectively; two years later, they’re almost even with 36% and 34%.