Global assets under management (AUM) by firms that have become signatories to global responsible investing principles has risen to US$62 trillion as of April 2016, from $21 trillion in 2010, Moody’s Investor Services announced on Thursday.
“Investor expectations and regulations are driving demand for sustainable investing,” Moody’s says in a news release.
Sustainable investing strategies “will likely continue to grow as demand rises, driven by large institutional investors such as pension funds, endowments and foundations,” Moody’s adds.
For example, the rating agency says that the California Public Employees’ Retirement System (CalPERS) requires investment managers to incorporate environmental, social, and governance (ESG) factors into the investment processes, and to report on those factors on a regular basis.
At the same time, high net-worth and retail investors are also playing an increasing role in the growth of sustainable investing. Assets in sustainable investing funds in Europe have nearly doubled over the last five years, to €136 billion from €75 billion, Moody’s reports.
“The emergence of the millennial generation is also giving the trend another boost,” Moody’s says. “This generation is increasingly demanding investment solutions that ensure their money also has a positive environmental and social impact.”
Moody’s research shows several asset managers have an edge as early movers in sustainable investing. BlackRock and Amundi “have demonstrated strong commitment to sustainable investing practices with clear and transparent policies, processes, communication and engagement,” Moody’s says. Standard Life Investment is also building a brand in this space, it adds.
“Integrating ESG criteria into investment decisions should limit risks within portfolios and contribute to lower volatility and better performance in the long run. The effectiveness of these strategies however will have to manifest through the cycle, as well as across teams and strategies,” says Marina Cremonese, vice president at Moody’s.
Asset managers “must overcome several hurdles to make sustainable investing strategies work. These include an insufficient supply of investible products, such as green bonds, uncertain performance expectations, evolving disclosure regimes, limited ESG data and education. Finding consistent, high-quality ESG data is a challenge, given a lack of universally accepted ESG definitions and standard reporting guidelines, although it’s getting easier to find, especially for large, public companies.” Moody’s concludes.
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