Interest in environmental, social, and governance (ESG) investment factors is expanding at a rapid pace among institutional and retail investors, as I have explained in previous posts. But I’d like to formally quantify some trends in this arena.
Within the United States, the primary forms of ESG implementation were integration, negative screening, and corporate engagement.
The Global Sustainable Investment Alliance (GSIA), a collaboration of membership-based sustainable investment organizations, began aggregating the results of regional market studies for Europe, Australasia, Africa, and North America in 2013. For the purposes of gathering data for its annual Global Sustainable Investment Review, GSIA used a broad definition of sustainable investing, inclusive of the following activities:
Negative/exclusionary screening: the exclusion of certain sectors or companies based on specific ESG criteria;
Positive/best-in-class screening: investment in sectors or companies selected for positive ESG performance relative to peers;
Norms-based screening: screening of investments against minimum standards of business practice based on international norms;
Integration of ESG factors: the systematic inclusion of ESG factors into traditional financial analysis;
Sustainability-themed investing: investment in themes or assets specifically related to sustainability;
Impact/community investing: targeted investments aimed at solving social or environmental problems, and community investing; and
Corporate engagement and shareholder action: the use of shareholder power to influence corporate behavior, including through direct engagement with management and/or boards, filing shareholder proposals, and proxy voting that is guided by ESG guidelines.
Recognizing that these approaches are not mutually exclusive, the GSIA adjusted for double counting in the aggregation of data for reporting purposes.
Combining the assets under management in all of these approaches across different geographies, the GSIA data showed that global sustainable investment assets nearly doubled from $13.3 trillion in 2012 to $21.4 trillion in 2014. Europe accounted for the largest share of total assets by a wide margin, 63.7%. It was followed by the United States (30.8%), Canada (4.4%), Australia and New Zealand (0.8%), and Asia (0.2%).
A more informative perspective on geographic representation is the size of sustainable investment assets relative to total professionally managed assets in each region, as shown in the chart below. This more clearly illustrates the relative importance of sustainable investing in Canada and Australia, and highlights its strongly growing presence in the United States.
Perhaps not surprisingly, the majority of global sustainable investing assets used negative/exclusionary screening as the primary means of implementation.
From a geographic perspective, the GSIA data showed that European and Canadian assets were more diversified across different implementation strategies: in addition to negative screening, there were a higher proportion of assets using norms-based screening, corporate engagement, and integration approaches.
Within the United States, the primary forms of implementation were integration, negative screening, and corporate engagement.
From a global perspective, the chart below shows that negative screening dominated, but integration strategies grew at the fastest rate (47% annual growth rate for the two-year measurement period).
GICS Reclassification: Impact on Emerging Market Investors
