New Report Finds Sustainable Investment Has Nearly Tripled Since 2010
According to a paper released Monday by nonprofit research organization World Resources Institute (WRI), values-led and forward-thinking investors are increasingly looking to put their money into sustainable investments.
The paper, titled Navigating the Sustainable Investment Landscape, reports that in U.S. markets alone, “more than $8.7 trillion of investment capital” is managed with some kind of sustainability standards, accounting for “a 184 percent increase since 2010.”
The researchers surveyed 115 investment professionals to build a clear, current picture of the state of sustainable investing. And while WRI found a lot of good news for the growing practice, the researchers also highlight some of the hurdles investors and managers still face in choosing sustainable options.
“Sustainable investment” isn’t exactly a fixed term yet, and can mean different things to different people, but in the case of WRI’s report, it’s defined by adherence to environmental, social and governance (ESG) criteria. Those that use these criteria base at least part of their strategy on the impact their investment choices will have on people and the planet. By doing so, investors can avoid supporting industries like fossil fuels or weapons manufacturing, and also bet on investments that support, say, clean energy technology or affordable housing.
Last year, the U.S. Department of Labor ruled that institutional investors—like pensions and 401(k)s—could put their money into ESG funds, rather than investments chosen on purely financial standards. This allowed investors from mission-driven companies and organizations to more aggressively align their portfolios with their values, driving up demand for sustainable investment options.
According to WRI, some investors are still skeptical when it comes to considering factors other than the bottom line. But in fact, WRI cites an empirical "positive correlation between ESG integration and corporate performance" in their report.
“If you invest sustainably, you’ve got just as good a chance of beating the market or not” as other investors, John Streur, president and CEO of Calvert Investments told the Wall Street Journal. “That question has been put to bed.”
“Some asset managers’ approaches offered evidence of using ESG to mitigate portfolio risk,” states the WRI paper. “For example, one noted that they had dropped holdings in BP before the 2010 Big Horizon oil spill due to its poor ESG performance.”
Despite these encouraging findings, WRI says there are existing factors that “prevent even the most motivated asset owners from deploying capital sustainably.”
One issue is what the paper describes as “inertia in the status quo”—that is, prevailing cynicism about the idea of “idealistic” funds, and the nerve it takes to deviate from the way things have always been done.
The report also points out the “lack of existing actionable frameworks” for sustainable investing—there’s no definitive roadmap yet—and that even those who set out to make socially responsible choices can’t always figure out how to do so. WRI itself, for example, began to dive into the state of sustainable investing while struggling to transition their $50 million endowment to better match their values.
The good thing is that all of the barriers identified in the paper seem directly connected to the relative newness of the sustainable investment concept. Fighting inertia and incentivizing investors, managers, and companies to take that first step towards sustainable investing will create more data, as well as eventual provable models for success. And as WRI's paper makes clear, momentum is rapidly building to this very end.
"As the world faces unprecedented challenges, the investment ecosystem is swiftly adapting. We’ve seen a deluge of new data, reporting standards, investment services and products that enable investors to engage in practical strategies for sustainable investing," write Elizabeth Lewis and Ariel C. Pinchot, two of the report's authors, in a blog post on WRI's site. "The truth about sustainable investing is that it’s a step in the right direction for long-term profits—as well as for the planet and its people."