Sustainable investing assets in the five major global markets were $42.77 trillion at the start of 2018, a 34 per cent increase on two years ago – and Australia and New Zealand are the top rated market.
The market share for sustainable investing has also grown in all the regions except Europe (which may just because they changed the rules).
To put that figure into perspective, $27.9 trillion is equivalent to the total US economic output for a full year.
Fossil fuel investments are getting too risky and expensive
According to the US Rocky Mountain Institute’s Todd Zeranski, part of the reason for growth is because regulatory penalties and the cost of climate clean-up is making fossil fuel investments too risky and expensive, so these investments are actually creating better returns.
For example, an institutional investors group in America comprising 20 funds and representing $2.51 trillion in global assets has asked the country’s 20 largest publicly traded energy generators to commit to achieving net-zero carbon emissions.
That’s quite something.
New York City Comptroller Scott Stringer, a lead member of that group, said, “the climate crisis is an imminent threat not only to our planet, but to pensions systems, and ultimately, our beneficiaries. Delaying climate action is like denying climate change – it’s not an option for these companies or for anyone else.”
Zeranski’s view is that in highlighting to customers the cost savings from transitioning to a clean energy system, these “large power providers are making clear that the demands of institutional investors for more climate-friendly policies do not involve a trade-off between climate and system costs.”
Australia leads in sustainability investing
The newly released Global Sustainable Investment Review 2018 documents the extent of environmental, social and governance factors in professionally managed assets.
In each of the five regions’ portfolio selections, sustainability investing ranges from 63 per cent in Australia and New Zealand to 18 per cent in Japan.
The fastest-growing regions were Japan (where it increased sixfold), followed by Australia/New Zealand and Canada.
Of course, it depends what you mean by sustainable investment
The Global Sustainable Investment Alliance, which compiled this report, defines it as including the following activities and strategies:
1. Negative/exclusionary screening – filtering out the bad stuff – certain sectors, companies or practices
2. Positive/best-in-class screening – investing in the good ESG stuff that’s been declared to perform better
3. Norms-based screening – taking into account minimum standards of business practice based on international norms, like those issued by the OECD, ILO, UN and UNICEF
4. ESG integration – the systematic inclusion of environmental, social
and governance factors
5. Sustainability themed investing – aimed at themes or assets specifically like clean energy, green technology or sustainable agriculture
6. Impact/community investing – aimed at solving social or environmental problems, especially areas not normally invested in
7. Corporate engagement and shareholder action – where shareholders have influenced corporate behavior.
The largest of these strategies globally is negative/exclusionary screening ($27.58 trillion), followed by ESG integration ($24.38 trillion) and corporate engagement/shareholder action ($13.65 trillion).
Impact investing is seen as a small but vibrant segment of the market
Amit Bouri, co-founder and chief executive officer of the Global Impact Investing Network, estimates in a new whitepaper “Sizing the Impact Investing Market” that over 1340 organisations currently manage US$502 billion in impact investing assets worldwide.
This is a diverse sector: From family offices to foundations, to banks to pension funds, and based in every region of the world and investing worldwide.
Over 800 asset managers account for about half, and most impact investing organisations are relatively small, with about half managing less than $40.4 million.
Australia and New Zealand comprise just 1 per cent of the assets held, with the majority, 58 per cent, being in North America.
“The market is fast-growing and dynamic, and new investors are entering the market frequently all over the world,” says the report.
Filtering out the bad stuff includes phasing out investment in coal-fired power stations
The Rocky Mountain Institute estimates that nearly 102 gigawatts of coal generation operated by regulated investor-owned utilities costs more money to keep running than buying power via power purchase agreements for renewable energy in those regions – so why wouldn’t you do this?
Why did Europe not perform so well as other regions in the world? It could be because it’s cutting down on greenwash.
Although sustainable and responsible investment strategies grew by 11 per cent over two years on that continent to reach $19.64 trillion, their share of the overall market declined from 53 per cent to 49 per cent.
This is felt to be due to the arrival of stricter standards and definitions of sustainability for investment purposes.
Is this enough to keep world average temperatures to below 1.5°C in line with the Paris Agreement?
No, say the influential signatories – experts, business leaders, politicians and more – of a letter published in the Financial Times calling on the International Energy Agency (IEA) to make the 1.5°C target the central scenario in its highly influential annual World Energy Outlook.
The IEA’s “New Policies Scenario” puts us on track for between 2.7°C and 3.3°C, yet almost all energy decision-making around the world is based on this.
At the beginning of April, over 60 business leaders, investors, and energy experts beseeched IEA executive director Fatih Birol and its governing council chair to develop a scenario that includes a reasonable chance at staying within 1.5 degrees Celsius (with a precautionary approach to negative emissions technologies), and make this the central scenario in the World Energy Outlook (WEO), replacing the typical business-as-usual scenario.
“Without the inclusion of a central and realistic 1.5C scenario going forward, the World Energy Outlook would abdicate its responsibility to continue to chart the boundaries of the path of the global energy sector,” the letter reads.
This would help to “shift the trillions” away from climate-incompatible fossil fuel financing to helping governments plan for success in energy decision-making to how we collectively conceive our energy future.
The IEA’s “Sustainable Development Scenario,” also fails to meet the Paris goals, assuming that fossil fuels will continue to dominate our energy mix for decades to come.