New research from Newsweek Media Group investigates the rise of sustainable and responsible (or ESG) investing, and finds that while the Paris Climate Accord and the adoption of the UN Sustainable Development Goals (SDGs) in 2015 have boosted growth in ESG investing (with three out of four investors now taking account of ESG information in the investment process), ESG has clearly become mainstream
The report, Going Mainstream—The Future of ESG Investing, is based on a survey that asked investors both about current ESG practices as well as outlook, finding that climate change is the leading driver of ESG strategies: 65 percent of investors listed this as their top priority, with a further 50 percent expecting to have divested from fossil fuels by 2030. Some 60 percent of investors also have a specific policy on meeting the SDGs.
Still, there is a significant gap between intent and action
Many investors are struggling with a lack of relevant investment information, and a scarcity of ESG investment vehicles. As a result, investors struggle to adopt ESG across their portfolios: just one-quarter of all assets globally are currently managed under ESG strategies.
The report argues that for sustainable investing to become the norm, corporate reporting and standards need to be improved, including, where appropriate, via regulation
Otherwise, there is a risk that the current push to give investments the ESG label turns it into a box-ticking exercise.
Beyond this, there needs to be a change in mindsets
Sustainable investing is often thought of as low-yield, yet data on investment performance show ESG investment strategies can deliver both higher returns and a reduction in volatility. To grasp the opportunity, investment professionals need better education and incentives. Interviewees also agreed on a need to create awareness among the general public, who have the power to demand more from those that manage their investments.
“The results of the research challenge long held assumptions and prejudices about the use of ESG data in making investment decisions,” said the report’s author Harry Hummels, chair in Ethics, Organizations, & Society at the Finance Department of Maastricht University, in a news release. “Yes, there is work to be done to accelerate change, but we are witnessing a trend which is clearly positive, inspiring and hopeful.”
“Newsweek Vantage gives business leaders the in-depth knowledge they need about the ideas that are changing business and the world around us. This report into the fast evolving area of ESG investing is a fascinating look at the opportunities and challenges facing this industry and the companies and individuals operating within it,” said Dev Pragad, chief executive officer of Media Group, in the release.
Over 280 asset owners and managers from across the world participated in the survey, which was conducted during March and April 2018. Investors were spread almost evenly across the Americas, Europe and Asia-Pacific regions. Around one half had assets under management (AUM) of USD 50bn or more, and around one tenth had AUM of less than USD 15bn. The research was sponsored by UBS Asset Management, AXA Investment Managers, Aegon Asset Management, Triodos Investment Management, Principles for Responsible Investment (PRI), and the US SIF: The Forum for Sustainable and Responsible Investment.