#TBT: Why Europe is the Poster Child for ESG Investing
While Europeans didn't necessarily invent the concept of ESG analysis for investments, you might be forgiven for thinking so. Europe continues to serve as the primary driver of research and analysis relating to anything and everything related to SRI. Not only are the largest, and most widely used, ESG research firms located in cities like Amsterdam and Copenhagen, Europe collectively holds one of the largest ESG portfolios in the world.
According to an article in Forbes, global sustainable investment assets reached over $22.89 trillion at the beginning of 2016, representing a 25% increase over 2014. Europe accounts for over half of these assets, 53% of the total, while the United States only accounts for about 38%. Regardless of the proportions, the Global Sustainable Investment Review shows that nearly every market represented has expanded holdings in SRI investments both absolutely and relatively in 2016. The fastest growing region for SRI investments is actually Japan, closely followed by Australia and New Zealand.
Another interesting trend from the report showed that Europe was the largest employer of negative screening (likely for the exclusion of carbon and fossil fuel using corporations), while ESG integration leads in the United States, Canada, Australia/New Zealand and Asia (excluding Japan).
Japan’s primary sustainable investment strategy is corporate engagement and shareholder action.The fastest growing strategy (although also the smallest in absolute dollar terms) is impact/community investing, but it should be noted that on a micro-economic level, it makes a HUGE difference.
The new consideration of the fiduciary duty is also an important driver for sustainable investing, in addition to client demand. While the law may still be up in the air for American lawmakers, it is highly coveted at the client-level.
According to the Climate Bonds Initiave in the GSIA report, in 2016 in Canada and Europe, most SRI assets were in bonds (64%) followed by equities (33%). "This is a flip from 2014 when 50% of assets were in equities and only 40% in bonds. China is another important contributor to the rise in green bonds as China is now the world’s largest issuer of climate-aligned bonds, with $220 billion in issuance."
There remains a massive global concern over climate change and human impacts on the environment, regardless of what politicians, big businesses and carbon-based energy producers would like to believe. ESG investing is not going anywhere, anytime soon, and the more politicians oppose it, the faster it grows.