Issue #2 of our sustainable finance report examines how ESG investing is gathering momentum. We show how ESG investing has progressed from risk management and a downside protection tool towards more positive motivations such as the search for yield and diversification. We examine the prospects for the U.S. renewable energy sector, where we expect investment will continue to expand due to improving technologies as well as commitments at a state and corporate level. We also explore how climate change is creating risks and investment opportunities across all sectors and asset classes for example in clean transportation and energy efficiency. We show how the real estate sector has some of the strongest reasons for incorporating sustainability into investment decision making, and we estimate the proportion of a global real estate portfolio with the strongest green building policies. We also highlight the growth in the microfinance sector which is being driven by its risk, return and diversification properties. As ESG legislation and regulatory initiatives are becoming more widespread, investors are also incorporating these requirements as a means to enhance their investment processes.
Investors have become increasingly aware of the importance of such issues as climate change, resource scarcity, labor rights and corporate governance to financial returns. We believe this helps to explain the growth in assets under management (AuM) that are classified as Environmental, Social and Governance (ESG). A quiet revolution has been underway in the responsible investment arena for over a decade. Its imprint is seen in the growth in various ESG investment styles.
1. as of March 2017