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ESG becoming 'mature' market, assets hit $30.7 T in 2018

Apr. 01 2019 — Global sustainable investments reached a new peak of $30.683 trillion at the beginning of 2018 after a 34% climb over the preceding two years, according to a new report.

Around the world, institutional and retail investors are becoming increasingly receptive to incorporating environmental, social and governance strategies into their own portfolios at a time when awareness continues to rise around corporations' responsibilities on issues such as gun ownership, board diversity and climate change. That demand has helped continue to fuel ESG investments in Europe, the U.S., Canada, Japan, Australia and New Zealand, where sustainable investments all grew from the beginning of 2016 to the beginning of 2018, according to the Global Sustainable Investment Alliance's 2018 biennial report, which was released April 1.

"We're reaching something of a much more mature market," said Simon O'Connor, CEO of the Responsible Investment Association Australasia, during an April 1 conference call with reporters.

With its sustainable investment assets totaling $14.075 trillion, Europe held its position as the largest hub of sustainable investing among the regions included in the report. The U.S. gained slightly on Europe's lead, though, as its sustainable investment assets climbed 38% from $8.723 trillion in 2016 to $11.995 trillion in 2018. Japan emerged as the third-largest market for sustainable investing in 2018 as responsibly invested assets spiked 307% from 2016 to 2018, the largest among any of the regions in the report.

Japanese investors have warmed to the idea of sustainable investing in part because some of the country's biggest investors are ramping up their ESG efforts, said Meg Voorhes, director of research for the U.S. Forum for Sustainable and Responsible Investment, during the April 1 call. In 2015, Japan's Government Pension Investment Fund, which controls more than ¥150 trillion in assets, signed onto the Principles for Responsible Investment.

The growth in sustainable investing among Japanese investors largely came through engagement of corporations' management teams and shareholder action, according to the report.

Australia and New Zealand had the second-highest growth rate of 46% over the two-year period, closely followed by Canada's 42% jump and the U.S.'s 38% rise. European sustainable investment assets grew 11% from 2016 to 2018.

At the beginning of 2018, sustainable investments in Australia and New Zealand, as well as in Canada, all accounted for more than 50% of those market's overall managed assets, according to the report. Sustainable investments in the U.S. accounted for 25.7% of the country's total managed assets at that time, while they represented 18.3% of Japan's overall managed assets.

Europe was the sole market that saw a drop in the proportion of sustainable investments to overall assets, as they accounted for 48.8% of total managed assets in 2018 versus 52.6% in 2016 and 58.8% in 2014. That drop was largely driven by shifting regulations across Europe that have changed how certain ESG investing strategies are defined.

Across all five regions, the most popular form of sustainable investing strategy came from negative and exclusionary screens, through which investors elect not to invest in a specific company based on their business line. That model has drawn some criticism from ESG skeptics, who say it can detract from investors' returns. The second-most popular form of sustainable investment strategy is in ESG integration, which grew 69% from 2016 to 2018 largely thanks to growing interest in the model within the U.S.

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As of March 29, U.S. $1 was equivalent to ¥106.50.