Going mainstream: The Future of ESG Investing [Download]

Going mainstream: The Future of ESG Investing v4
Going mainstream: The Future of ESG Investing Newsweek Vantage 2018

Over the past decade, a quiet revolution has been taking place in the world of investment; now, Environmental, Social and Governance (ESG) investing is going mainstream. At the end of 2016 around a quarter of all professionally managed assets were under ESG investment strategies and our research suggests that figure is only going to grow.

Though responsible investing has been gathering momentum since the financial crisis in 2008, two landmark accords marked a turning point for the movement: the signing by world leaders of the UN Sustainable Development Goals (SDGs) in September 2015, followed by the Paris Climate Agreement later that year. These ambitious charters that aim to tackle humanity’s most pressing concerns – among them climate change, acute hunger and poverty -- require investments of upwards of USD 7 trn per year (or twice the US Federal Budget) – mostly in developing countries.

Increasingly, and encouragingly, private finance is stepping up. In the period following the adoption of these agreements the volume of assets covered by the Principles of Responsible Investment (PRI) expanded by 40%. Institutional investors – among them the world’s leading sovereign wealth funds, pension funds and insurance companies – are boosting their ESG- focused investments. Philanthropic foundations are now linking their investments to the SDGs, and in the US, while the current administration has pulled out of the Paris Agreement, close to 2,000 investors and companies have said ‘We’re still in’.

Where financiers are not being compelled into action, they are being pushed. Those same institutional investors are mandating greater disclosure on ESG issues or getting active via shareholder resolutions; some are starting to divest from controversial sectors such as tobacco, weaponry and coal. Regulators in France (and soon across the EU) require corporations and financial institutions to report on their ESG performance; in the US, companies are increasingly reckoning with climate-related litigation.

There is also much upside. Data on investments and index performance show that taking account of ESG information can actually boost returns and reduce volatility; our survey respondents and investors we spoke with agree that integrating ESG information can improve the risk-return profile of investments, providing a “new set of eyes” for investors.

 

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