Global sustainable investment has passed US$30 trillion, but US excluded from majority of trend analysis figures due to “material change” in methodology.
The sixth biennial edition of the Global Sustainable Investment Alliance’s (GSIA) ‘Global Sustainable Investment Review’ (GSIR) reported a 20% increase in sustainably invested AUM in non-US markets since its previous edition.
According to the GSIA’s data, the value of sustainable investments in Europe, Canada, Japan, Australia and New Zealand has risen from US$18.2 trillion to US$21.9 trillion over the period. Further, if US figures are included, the total global figure of sustainable investment has surpassed US$30 trillion.
The GSIA explained US data was excluded from the GSIR’s trend analysis due to a “material change” in the country’s sustainable investment methodology and associated regulations.
According to the Alliance, if US data were to be included, the trend analysis would show a global decline of 14% in sustainable assets as opposed to the 20% rise.
In Europe, sustainable investing grew from US$12 trillion AUM in 2020 to US$14 trillion in 2022, accounting for 46% of sustainably managed assets. The Japanese market saw sustainable assets increase from US$2.9 trillion to US$4.3 trillion over the same period, while Australia and New Zealand reached US$1.22 trillion.
Released ahead of COP28 in Dubai, the GSIR includes policy recommendations for the first time. These include calling on governments to provide “supportive capital market environments” for net zero investment opportunities, as well as enhancements to data availability to ensure investors receive information needed to “effectively incorporate sustainability factors into investment decisions”.
The report also called on governments, regulators, and standard-setters to collaborate to support closer global alignment on sustainable finance regulations and address regulatory fragmentation.
Earlier this month, the GSIA, the CFA Institute, and UN-convened Principles for Responsible Investment outlined aligned definitions for five terms: screening, ESG integration, thematic investing, stewardship, and impact investing.
The GSIA is an umbrella organisation representing several major sustainable investment forums (SIF), including Eurosif, UKSIF, US SIF and JSIF.
The GSIR noted a maturing of the industry, including the adoption of tighter definitions for sustainable funds, including those adopted by US SIF in its biennial report on ‘US Sustainable Investing Trends’ released last December.
The report made a new distinction between firm- and fund-level claims to sustainability, only including the assets of investors or vehicles that incorporate one or more specific ESG criteria, plus the assets of funds which specify that ESG or sustainability is integral to its decision-making or portfolio construction.
This methodology change and a then-impending regulation reinforcement saw a halving in the amount of sustainably managed US assets recorded to US$8.4 trillion versus US$17.1 trillion in 2020.
This tightening of regulation included fund labelling rules from the US Securities and Exchanges Commission (SEC), which were adopted in September.
Maria Lettini, CEO at US SIF, pointed out that a similar trend was observable in Europe when a more “rigorous strategy” was applied. The GSIR highlighted that in the Europe long-term trends suggest that the proportion of assets defined as sustainable has been declining by roughly 5% per year, falling from 59% in 2014 to 38% in 2022.
The GSIR noted this change in methodology in Australasia during the 2020 reporting period saw sustainable assets decline from 63% to 38%, with a “moderate rebound” to 43% in the 2022 reporting period.
“We believe that many regions of the world have now done some rethinking”, said James Alexander, CEO at UKSIF.
“Europe and Australasia have been leading on that in the last few years, but Canada and the US are definitely catching up,” he added.
“We’re working to continually evolve sustainable definitions, which is important because this is not a static industry – we will see further changes in future.”