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Tuesday, December 1, 2015
- Nearly 22 percent of professionally managed assets around the world can be considered sustainable or responsible, according to a finance industry assessment, the first comprehensive look at the subject.
That amounts to at least 13.6 trillion dollars of investments that claim to incorporate concerns over environmental, social or governance issues into their selection or management processes. Still, critics warn that a lack of industry guidelines on how to define terms such as “sustainable” remains a major obstacle in leveraging private investment for the good of both human communities and environmental systems.
The trend behind those figures is certainly substantial. From 2009 to 2011, the sustainable investment sector in Europe grew by 35 percent; in the United States during that same timeframe, such investments grew by 22 percent and, from 2005 to 2012, the sector grew by a massive 486 percent.
“This is encouraging in a time when many parts of the financial industry are under pressure to demonstrate value, and it suggests that there are high levels of investor interest around the world in financing the businesses, projects and ideas needed to drive sustainable growth,” states the new Global Sustainability Investment Review 2012, released on Monday.
The authors, working under the auspices of a new group, the Global Sustainable Investment Alliance (GSIA), a finance industry umbrella group, note that the findings “conclusively show that the sustainable investment industry has significant scale in the global arena” and suggest “a sustainable investment landscape that is well-developed, diverse and culturally responsive”.
Still, the vast majority of the sector as currently defined is made up of Western countries, with the United States, European Union and Canada comprising 96 percent of these assets. GSIA researchers, however, expect such investments to continue to rise in all regions.
“A number of emerging markets are seeing ideas of corporate social responsibility as a way of attracting foreign investment, and many have been looking into the idea, for instance, of having sustainable stock exchanges,” Meg Voorhes, deputy director and research director for the U.S. Forum for Sustainable and Responsible Investment (U.S. SIF), told IPS, specifically pointing to moves by Brazil and South Africa.
“The assets involved may be small, but this is certainly providing momentum,” she said.
Of that 13.6 trillion dollars, a full 89 percent of sustainable investments are made by institutions, with only the remaining 11 percent being “retail” investments made by individuals (though the retail level is higher in the United States than in Europe). By far the largest strategy, making up some 8.3 trillion dollars in assets, is what is known as exclusionary screening, wherein a certain sector (for instance, the tobacco industry) or country (Sudan) is deemed off-limits.
While the seven organisations – made up of fund managers and a broad spectrum of finance industry players – involved in the report’s creation have each produced region-specific analyses on sustainable and responsible investing in the past, the new report marks the first time that researchers have stepped back to standardise indicators and compare worldwide trends.
The report’s publication also marks the formation of the GSIA, which aims to allow members to share information and experience across countries and industry niches. That could be an important process, given that today’s sustainable investment sector is held together by no common rules and few defined common understandings.
Inevitably, this impacts on the ways in which sustainability-related decisions are made. In the United States and Canada, for instance, shareholders have far more leeway to file resolutions than they do in Europe. In Europe, on the other hand, companies tend to be more open to signing on to international standards (for instance, those set by the United Nations) than are their U.S. counterparts.
“There are plenty of grey areas and no clear-cut answer on how companies decide on where to draw certain lines, but that helps explain why shareholder engagement is so important,” U.S. SIF’s Voorhes said.
“Certainly in the U.S., when we survey investment managers about why they are engaging in this form of investment, the leading answer is client demand. When we look at institutional asset owners, the leading factor is that these types of investments are aligned with a broader mission.”
She also notes that public funds are usually responding to specific legislation, “which you could argue represents the public will”. Indeed, for years U.S. SIF has been a strong advocate for legislation that would require greater corporate disclosure of social and environmental indicators.
Still, broader forces have clearly been at work in pushing investors in these directions in recent years.
“Global trends we all face are a warming planet and population growth – there’s now a real sense, and added urgency, that we’re at our planetary limits and have to be very careful how we’re managing planetary resources,” Voorhes said.
“Another global trend is the speed with which information moves, where today it’s far easier for investors in one country to see what a company is doing around the world. Labour abuses, for instance, are far easier to hear about today than they were a few decades ago. There is simply a greater level of disclosure in this interconnected world.”
Still, many advocates have expressed frustration that there remain no set guidelines despite the significant expansion of the sustainable investment sector. Some warn that this could allow companies to put in place only superficial policies while painting themselves as socially responsible.
One significant point of concern among some environmentalists, for instance, is that investment funds will look to strengthen their “green” credentials by choosing to invest in alternatives to fossil fuels – the biofuel products that to a great degree are fuelling the purchases of massive swaths of arable land across parts of Africa by Western corporations.
“It is a huge problem that there are no set criteria used by industry today to define ‘sustainable’ practices or investments – on what basis are these claims being made and who has vetted any such criteria?” Anuradha Mittal, the executive director of the Oakland Institute, which has researched extensively on current “land-grab” trends, told IPS.
“Investment is necessary, but only if investment criteria are first vetted by local communities, to incorporate labour, environmental and social concerns. Given that no such standards exist, and given that corporate accountability remains a major difficulty, this is extremely problematic. We need to see that investment is actually elevating communities and natural systems, because that’s what the world needs.”