$23 trillion – Responsible investment assets continue to boom
$23 trillion dollars – that’s the important number from the recently released Global Sustainable Investment Review 2016, a report RIAA was pleased to be launching with our colleagues from around the world in London last week (report here).
All of us in Australia and New Zealand would certainly have felt the surge in interest and focus on ESG, ethical and impact investing. As RIAA’s own research has identified, responsible investing (RI) now makes up 50% of all professionally managed assets in Australia, with retail RI funds having doubled in the last two years. The momentum is unstoppable as client awareness grows and feeds demand and managers bring a vast array of new products to market. It’s never been easier for advisers to steer clients’ money towards responsible funds and investments in-line with client values.
But has this trend been global?
I was fortunate to be in London last week for the launch of the Global Trends report, published by the Global Sustainable Investment Alliance of which RIAA is a member. What became clear to me is the number of similarities in global financial markets that are shifting ever-greater sums into RI.
So what did we learn?
- Global RI assets have moved in absolute and relative terms, growing by 25% in two years, to now make up 26% of global professionally managed assets. Every region has continued to grow strongly over the last two years, with Europe remaining the largest centre for RI, making up 50% of that $23 trillion, followed closely by the US.
- One of the major drivers in all major financial markets is the emerging consumer or client demand for RI in all forms – from ESG, ethical to impact investing. This is a significantly different dynamic to what has been driving RI for the majority of the last 10 years. Client demand is now clearly the most significant driver globally, and it would seem Australia and New Zealand are no different.
- In this context of rising consumer demand, the conversation about Certification Labels is growing rapidly. There are now well over 10 different certification programs across Europe, some legislated (France) others driven by the Sustainable Investment Forum community (organisations like RIAA). It’s pleasing from our perspective to have the world’s longest running Certification program, and one that has recently been further strengthened to be functioning all for this rising consumer and adviser interest. The importance of third party, external verification becomes critical in a growing consumer market, to establish the quality credentials of investment products, and make it easier for consumers to navigate towards investment products (and advisers) that match their needs.
- Negative screening is back – for those who have been around a long time, negative screening was really the start of RI, but it appears we’ve gone back to the future. Much like the divestment conversations here, screens on socially harmful industries are becoming much more common. What has changed though is that screening is only just the beginning, with clients now wanting the negative screen, as well as the ESG, the positive screens and maybe a bit of impact for good measure. Consumers want their cake and to eat it to.
- Which brings us to 5, that RI is getting much more sophisticated, with leading investors delivering investments (whether institutional or retail) that include multiple approaches to RI – ESG integration, is nearly always coupled with corporate engagement and voting, increasingly alongside some basic negative screens, often positive screens, and allocations to sustainability themed and/or impact investments. RI portfolios today are getting increasingly harder to categorise under one RI strategy.
- Impact! Impact investing (investments that have measurable social and environmental outcomes that explicitly sit alongside financial returns) is the smallest category of assets in the global study but the fastest growing – watch this space!
Impact is also a topic being discussed outside of the impact investing sector, across all responsible investments; increasingly investors are trying to establish the social and environmental impacts and outcomes of their portfolios across all asset classes. In the coming years, we expect to see many more investors reporting on impact or outcome metrics for their clients. Currently there are many forms this can take, and clearly around the World the Sustainable Development Goals are emerging as a useful framework for this. Where it goes is currently hard to tell, however one thing is for sure, that talking about impacts and outcomes is a great way to gain and retain deep client engagement with your investments.
Have a look through the full report for more insights into what is emerging globally for RI.