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Social Investing Grew to $23 Trillion in 2016

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Global assets professionally managed under sustainable and responsible investment strategies soared to $23 trillion in 2016, a 25% increase from 2014, the Global Sustainable Investment Alliance reported this week in its biennial review.

Responsible investment now accounts for 26% of all professionally managed assets globally, according to the review.

Several GSIA members reported that consideration of fiduciary duty was an important driver for sustainable investing, along with client demand, the organization said in a statement.

Other research has found that U.S. investors demand consideration of environmental, social and governance factors.

Moreover, advisors who fail to understand the growing popularity of investing according to Environmental, Social and Governance (ESG) principles risk falling behind their competition.

Following are the 2016 assets in activities and strategies that comprise sustainable investment, according to the GSIA:

  • Negative/exclusionary screening: $15 trillion, up from $12 trillion in 2014
  • Integration of ESG factors: $10.4 trillion, up from $7.5 trillion
  • Corporate engagement and shareholder action: $8.4 trillion, up from $5.9 trillion
  • Norms-based screening: $6.2 trillion, up from $4.4 trillion
  • Positive/best-in-class screening: $1 trillion, up from $890 billion
  • Sustainability-themed investing: $331 billion, up from $138 billion
  • Impact/community investing: $248 billion, up from $1.1 billion

The report said negative screening was the largest strategy in Europe, while ESG integration led in the U.S., Canada, Australia/New Zealand and Asia ex Japan.

Japan’s primary sustainable investment strategy was corporate engagement and shareholder action. The fastest growing strategy, although also the smallest in absolute dollar terms, was impact/community investing.

Sustainable investing grew in both absolute and relative terms since the beginning of 2014 in nearly every market represented in the report, according to the GSIA.

Europe accounted for 53% of global SRI assets, and the U.S. for 38%. The fastest growing region was Japan, followed by Australia/New Zealand.

The report said that retail investors were showing increased interest in SRI investments, even as institutional investors still dominate the market; pension funds often comprise the largest percentage of institutional SRI assets.

The relative proportion of retail SRI investments in the U.S., Canada and Europe increased from 13% in 2014 to 26% at the start of 2016. More than a third of SRI assets in the U.S. were retail.

Green Finance

According to the GSIA, global concern about climate change has resulted in rising interest in green finance, including climate-aligned bonds.

It said growing interest in green bonds over the last two years has shifted the average SRI asset allocation. In 2016, 64% of SRI assets in Canada and Europe were in bonds and 33% in equities, whereas in 2014, 50% of assets had been in equities and only 40% in bonds.

China is another important contributor to the rise in green bonds, having become the world’s largest issuer of climate-aligned bonds, with $220 billion in issuances, the report said, citing research by the Climate Bonds Initiative.

Further citing the CBI, the report said the U.S. is the second largest issuing country in the climate-aligned bond universe with $111 billion, or 16% of the global total. The U.S. is also the largest issuing country of labelled green bonds.

VanEck recently rolled out the first U.S.-listed fixed income ETF to provide targeted exposure to the fast-growing green bond category.

— Check out Clients Clamoring for ESG Investing Advice on ThinkAdvisor.