Global growth in sustainable investment has grown 25 per cent since 2014, according to a new report from the Global Sustainable Investment Alliance, and Australia is blitzing the competition with close to 250 per cent growth.
The biennial Global Sustainable Investment Review 2016 found that total assets at the start of 2016 in sustainable, responsible and impact investing reached $22.89 trillion, equating to 26 per cent of all professionally managed investment assets globally.
Australian/NZ growth was across both retail and institutional investments, with responsible investment assets hitting US$515.7 billion in 2016, equating to 50 per cent of all professionally managed assets.
“This development reflects the strong commitment to ESG integration by some of the region’s largest investment institutions across sovereign wealth funds, superannuation and funds management.”
The growth since 2014 has been 247.5 per cent, equating to a compound annualised 86.4 per cent. The region was only eclipsed by Japan, which saw a growth rate of a massive 6689.6 per cent over the two years, however it was starting on a tiny base of $7 billion in 2014 growing to $474 billion in 2016.
In Australia ESG integration was the leading strategy, the report said, with the property sector highlighted as an example.
“Australia’s listed property groups have long been leaders in managing ESG issues in the built environment, and more property funds (largely commercial real estate) are positioning themselves as green themed funds where assets are managed to a very high environmental standard,” the report said.
Overall, Europe accounts for 53 per cent of sustainable investment assets, and the US 38 per cent.
The largest sustainable investment strategy used globally was negative/exclusionary screening, the report said. This affects $15.02 trillion in assets. ESG integration – where environmental, social governance factors are a key decision-making tool – was second, and applied to $10.37 trillion in assets.
Green finance showing strong growth
Green finance, including climate-aligned bonds, has also seen strong growth due to “growing global concern over climate change”.
“Investments in sustainability themed vehicles tripled from 2014 to 2015 from $AU8 billion to $AU24 billion. While multiple themes fall under this sustainable investing strategy, what dominates are low carbon strategies, green property funds, green bonds and sustainable agriculture investments.”
High profile allocations of capital into green finance over the past two years have included green themed bonds, low carbon tilting of portfolios and private equity allocations with “explicit targets for low carbon or clean energy companies that offer renewable energy or energy efficiency solutions.”
“Some key institutions have been integral in unlocking capital flows into environmental finance, most specifically the government backed, $AU10 billion Clean Energy Finance Corporation, which is tasked with co-investing with private investors into low carbon assets and businesses, with a model very similar to the UK’s Green Investment Bank.”
Fiduciary duty and client demand the driver
Fiduciary duty and client demand are the key growth drivers for sustainable investing.
“Core responsible investment strategies – those most closely related to retail ethical and SRI investments – account for 3.8 per cent of Australia’s total professionally managed assets ($978.2 billion), up from 2.5 per cent in 2014.
“This is a key indicator of the rising consumer demand for responsible investment options in Australia that is increasingly shaping the market, and resulting in a flourishing of new investment offerings for an increasingly engaged consumer.”
- Read the full report