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Sustainable investment assets grew to $35.3 trillion
globally last year.
Sustainable investment assets grew to $35.3 trillion globally last
year amid mounting concerns about societal inequities and climate
change. That’s about $1 of every $3 managed globally seeking out a
profit from environmental, social and governance concerns, according
to Global Sustainable Investment Alliance’s report last month.
It’s an impressive number. But the bulk of that money—some $25
trillion—is in a strategy called “ESG integration,” also known as “ESG
consideration.” In theory, this means that managers are including ESG
data in their financial models, according to GSIA.
In practice, money managers may be “aware of” and “take into account”
ESG factors when making investment decisions, said Rob Du Boff, an
analyst at Bloomberg Intelligence. But they’re not necessarily
compelled to act on that information, he said.
Nicolette Boele, an executive for policy and standards for the
Responsible Investment Association Australasia, agrees that ESG
integration doesn’t always translate into action. Unless it’s paired
with things like proxy voting and corporate engagement, that alone
won’t necessarily “deliver better sustainability outcomes for a better
world,” she said.
Many large fund managers are saying they’re integrating ESG
across their holdings in a bid to attract assets from pension plans
and other investors amid the boom in sustainable investing. Since ESG
lacks definitions, it can often mean different things to different
people, said Lisa Sachs, who heads Columbia University’s Center on
Sustainable Investment. And because ESG integration is often conflated
with other responsible investment strategies such as impact investing
and negative and positive screening, it’s helping to create a false
impression that the world of money management is directing capital
towards helping solve societal ills.
“The major risk is that finance is purporting to solve social and
environmental problems through ESG and that there’s no need for
government action,” Sachs said. “But we need rigorous policy to
address the big issues.”
Some regulators are trying. European sustainable investments shrank by
$2 trillion between 2018 and 2020 as policymakers tightened
the parameters for what can be considered a responsible investment,
GSIA said. In March, the EU implemented a set of rules known
collectively as the Sustainable Finance Disclosure Regulation, which
require fund managers to classify and disclose the ESG features of
their products. Those that promise to actively promote ESG goals have
a higher bar to clear on transparency.
In Australia, the finance industry is relying on its own voluntary
rules rather than regulators. The Responsible Investment Association
Australasia has a certification program and a responsible
investment-leaders scorecard that rely on publicly disclosed policies
and reporting on processes to help reward responsible investing,
according to Boele.
“The requirement of this transparency is key to industry
accountability,” she said.
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Sustainable finance in brief |
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