With an ever-growing interest in sustainable investing, investors want to understand whether this is a passing trend or here to stay. Over the past few years, sustainable investing has rapidly grown and evolved, building a healthy base of assets under management (AUM) across the globe, and offering investors a variety of techniques to employ in their portfolios.
Sustainable investment assets have grown considerably over the past few years, reaching over 30 trillion USD in 2018. As highlighted by the chart below, growth happened across developed economies from 2016 to 2018, although at varying rates. Japan saw an impressive annualized growth of 114%, despite very low AUM as a starting point. Meanwhile, Europe grew the slowest, at a pace of 8%, but the region continues to manage nearly half of the sustainable investing assets globally. In between these two extremes, the U.S. saw a healthy rise of sustainably-managed assets with double-digit growth rates.
In addition to asset growth, this has become a truly multi-faceted space, with many investment approaches to choose from. Broadly speaking, sustainable investing is an approach that considers environmental, social and governance (ESG) factors in portfolio selection and management. In the U.S., curiosity about ESG integration is driven by the question: how can ESG be incorporated into investment decision making? This space has quickly evolved, and there are now several key methods of implementation:
- Exclusion: exclusion of certain sectors or companies based on specific ESG criteria
- Positive: investment in sectors or companies selected for positive ESG performance relative to industry peers
- ESG integration: systematic and explicit inclusion of ESG factors by investment managers into their financial analysis
- Thematic investing: investment in themes or assets specifically related to sustainability
- Impact investing: targeted investments aimed at solving social or environmental issues while also delivering a financial return
- Corporate engagement and shareholder action: use of shareholder power to influence corporate decisions
While not all strategies will be of interest to or appropriate for all investors, the versatility in this emerging area offers something critical to investors: options.
Overall, the growth of AUM and increasing focus by investors around the world suggests an interest and adoption of sustainable investing that is unlikely to subside anytime soon.
Sustainable investment assets under management
Source: (All charts) Global Sustainable Investment Alliance (GSIA), Investment & Pensions Europe (IPE), J.P. Morgan Asset Management. Total market assets under management (AUM) represents the AUM of the top 400 asset managers in 2018, and comes from IPE. ESG integrated/total sustainable investment AUM is the total sustainable investing assets in five major markets (Europe, US, Japan, Canada, Australia and New Zealand), and comes from GSIA. Dedicated sustainable strategies represent a part of the total sustainable investment AUM, and includes norms-based screening, positive/best-in-class screening, sustainability themed investing and impact/community investing as defined by GSIA.