04.02.2019
By Shanny Basar

Legislation On Sustainable Investing Progresses

US legislators have scheduled hearings on sustainable investing for the first time according to Meg Voorhees, research director for US SIF, the forum for sustainable and responsible investment.

Voorhees spoke yesterday on a webinar about the release of the biennial Global Sustainable Investment Review 2018.

The survey found that global sustainable investment assets reached $30.7 (€27.4) trillion at the start of 2018, an increase of a third from 2016.

She said: “US legislators have scheduled hearings on sustainable investing for the first time. It is significant that it is on the agenda of Congressional committees.”

Will Martindale, director of policy & research, Principles for Responsible Investment (PRI) responded to the Senate Banking Committee hearing on ESG investing and proxy voting taking place in the US in an email.

Will Martindale, PRI

“US policy should support this evolution by ensuring investors’ ability to raise critical ESG issues with companies through the shareholder proposal and proxy voting processes,” he added. “To meet market demands for more sustainable investment products, PRI calls for policymakers to require that companies disclose uniform, comparable ESG data that can be integrated into investment processes.”

The review said sustainable investing assets have grown in all regions since 2016 with the fastest growth in the last two years in Japan.

“In Japan, sustainable investing assets quadrupled from 2016 to 2018, growing from just 3% of total professionally managed assets in the country to 18%, said the study. “This growth has made Japan the third largest center for sustainable investing after Europe and the United States.”

Corporate engagement and shareholder action is the dominant strategy in Japan. Globally the largest sustainable investment strategy is negative/exclusionary screening ($19.8 trillion), followed by ESG integration ($17.5 trillion) and corporate engagement/shareholder action ($9.8 trillion).

Total US-domiciled assets under management using sustainable strategies grew 38% from $8.7 trillion at the start of 2016 to $12 trillion at the start of 2018.

Europe

Europe has the the largest concentration of sustainable investment assets at €12.3 trillion ($14.1 trillion).  However, Europe’s market share of global sustainable investing assets fell from 53% to 49%.

Simon Howard, UKSIF

Simon Howard, chief executive of UKSIF spoke on behalf of the European Sustainable Investment Forum, Eurosif, on the webinar.

Howard said: “European market share dropped as our members moved to tougher definitions of sustainable investing.”

He continued that legislation such as France’s Law 173 has led to the mainstreaming of environmental, social and governance strategies. In 2016 France became the first country to introduce mandatory climate change-related reporting for institutional investors, who have to explain how ESG policies are integrated in their investment process.

The European Commission has also launched an action plan on financing sustainable growth.

“The EU plan will be biggest shaper of the future of sustainable investing,” said Howard.

He added that the EU’s proposed taxonomy for green finance has made the slowest progress and there is unlikely to make further headway before the end of this year due to elections for the European Parliament in May.

Detlef Glow, head of EMEA Research at data provider Lipper, said in a report this week that there was some resistance to the proposed reporting requirements from asset managers and mutual funds. As a result, the European Parliament dropped some of the more wide-ranging amendments last month.

The European Parliament voted that only those fund who declare they are using ESG strategies will have to report how the fund is positioned by using the taxonomy.

“The European Parliament missed a chance to make the financial industry more sustainable with this decision” added Glow. ‘On the same page, it needs to be said that the new legislation will make it much harder for asset and fund managers to maintain ‘greenwashing strategies’ as this will be visible once the new reporting is in place.”

Lack of data

The Investment Leaders Group, a a network of pension funds, insurers and asset managers, analysed whether there is sufficient data to enable institutional and retail investors to assess the long-term orientation of the investment funds.

In co-operation with the University of Cambridge Institute for Sustainability Leadership, the group applied a new Long-term Disclosure Framework to assess funds that explicitly identify themselves as ‘long-term’.

Kajetan Czyz, program director at the Cambridge Institute for Sustainability Leadership, said in a statement: “At present it is very challenging to assess whether and how the aspiration in funds that present themselves as ‘long-term’ feed through to investment beliefs, and from there into objectives (financial and sustainability-related), investment processes, stewardship practices, performance monitoring and reporting”.

Cryz continued that the findings are surprising given that many parent organisations have long-standing commitments to responsible investment, and report extensively on responsible investment in responsible investment reports and/or as part of the PRI reporting requirements.

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