The boom of sustainable investing

Sustainable investing, considered a niche investment option just a few years ago, is now a key component of a balanced investment strategy for a wide range of investors. The COVID crisis, rather than deprioritise responsible investment, has helped accelerate its development and push sustainability to the forefront. Recent figures from Morningstar track this accelerated growth, highlighting its concentration in Europe as well as the future opportunity elsewhere.

This growing enthusiasm for sustainable products has been enhanced by initiatives and stimulus packages announced by both governments and companies worldwide, whether it is from the new administration of President Joe Biden poised to release a wave of green reforms, the rollout of environmental initiatives from the European Union or the proliferation of net-zero emissions goals announced by countries and companies around the world.

Where does the industry go from here? A recent study from Blackrock surveyed 425 investment groups across 27 countries with $255tn in AUM, and demonstrated that the intention is to continue to allocate towards sustainable investment, and develop greater expertise:

  • Participants plan to double their sustainable AUM in the next 5 years, raising from 18% of AUM today to 37% by 2025. The biggest growth is expected in fixed income and alternative investment
  • 54% of global respondents consider sustainable investing to be fundamental to investment processes and outcomes. But regional differences remain. While it has become the new normal in EMEA, PAC and Americas are in the earlier stages of this progression.
  • 53% of global respondents cited the poor quality or availability of Environmental, Social, and Governance data and analytics as the biggest barrier to deeper or broader implementation of sustainable investing
  • ESG integration seems to be the most popular approach to sustainable investing, with 75% of global respondents currently, or considering, integrating ESG into their investment decisions, followed by 65% of respondents who utilize, or who would consider utilizing, exclusionary screens as a key mechanism for expressing their sustainability principles.
  • When comparing focus on ESG factors, 88% of global respondents ranked Environment as the priority most in focus amongst those choices today, reflecting the urgency that is presented by climate change.

At the same time as this tremendous growth, the incoming regulation from the EU will challenge the issues of greenwashing which continue to exist. Starting with the Sustainable Finance disclosure Regulation which was implemented this week, followed by the EU taxonomy in 2022, we expect to see greater transparency in the industry and diligence from investors to invest in truly sustainable funds. It is quite certain that sustainability is here to stay, and we expect the rigour and expertise from asset owners to continue to increase.

For Quaero Capital, we have seen a similar shift, with now more than 40% of our AuMs in sustainable strategies and many interesting plans in development for new sustainable fund launches. With several of our funds to be defined by the SFDR regulation as those with sustainable characteristics and/or objectives, and continued commitment to ESG analysis and engagement across all strategies, we show our seriousness and credibility on the topic of sustainability.