A Global Look at Sustainable Investing

While studying for my Chartered SRI Counselor designation last year, one particular module of the study materials focused on comparing sustainable investing across different countries.  I already knew that investments were increasing in sustainable funds internationally, but it always seemed like it was relatively new on the international scene relative to here in the US.  It turns out that is not the case at all.

Before we look at sustainable investing around the world, first, let’s define the term.  It is defined as investing in areas that seek to deliver both social value and maximize investment value.  An organization called the Global Sustainable Investment Alliance (GSIA) generates a report every two years detailing sustainable investing across the world.

Globally, assets under management in sustainable investments, increased by 15% from 2018 to 2020.  That brought the amount of all professionally managed assets in sustainable investments to the current 36%.  If we look at 2016-2020 instead, the increase was 55%.

Historically in most global financial markets, institutional investors (pension funds, mutual funds, insurance companies) move the direction of the market.  In the case of sustainable investing, that also holds true.  However, between 2018 and 2020, retail investors (*us*) increased from 11% to 25% in the sustainable investing movement and lowered the impact of institutional investors in this area.

What does sustainable investing look like in different regions?

In the United States, 85% of individuals surveyed indicated they would be interested in sustainable investing.  Among Millennials, this number is closer to 95%.  What seems to be the most important to sustainable investors in the US is plastic reduction and climate change.  Community development and accomplishing the United Nations Sustainable Development Goals (SDGs) is next in line.  SDGs include no hunger, no poverty, good healthcare, quality education, and gender equality, just to name a few.

Europe had a different experience in sustainable investing between 2018-2020.  This region actually showed a decline in sustainable investing since the beginning of the reports back in 2010.  The statistics for sustainable investing were strongly distorted due to an overhaul in their system as to what is clearly defined as “sustainable investing.”  A true decline in sustainable investing during this time it difficult to determine.  Europeans are particularly focused on investing to improve the environment.

Canada had the largest increase in sustainable investing among all major international markets reviewed.  Sustainable investments grew by 48% from 2018 to 2020.  Diversity and inclusion (the advancement of women and diverse groups), plastic reduction, and climate change are the top sustainable investing priorities for Canadians.

Australia and New Zealand increased sustainable investing by 25% during the time of this report.  The areas of focus for them are a bit different than other regions.  They are focusing on place-based investing.  This is defined as deployment of capital to improve the local area, also known as the “buy local” movement.

Since 2018, Japan has seen more industry collaborations in regards to sustainability.  There is a demand for more effective sustainability framework (corporations having better guidelines for sustainable measures in making their products).  An increase in sustainable investing of 34% occurred from 2018-2020.  The primary focus in Japan is corporate governance and climate change.  Examples of corporate governance include fair wages, transparent accounting practices and worker’s rights.

The China SIF (Social Investment Forum) reported more than 20 ESG (environmental, social, and governance) mutual funds were created in 2020 alone.  Sustainability in China is focused specifically on preventing financial fraud, increasing product quality, addressing health and safety measures, as well as environmental violations and corruption and bribery.

~ Jennifer Adams, CFP

*Source:  Global Sustainable Investment Review 2020.

 

Opinions expressed are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

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