Responsible investing - The world tour

How the U.S. is playing a leading role, why ESG is particularly relevant for Emerging Markets, and Europe’s ambitions to be a global rule setter

Introduction

ESG activity is evolving around the world at an accelerating pace. In this article, we will investigate the instigators of change - from investors, businesses, governments, regulators, supervisors, and civil society - to better understand, not just geographic differences, but also the direction of travel and the rate of change.

We find that public policy initiatives, such as the United Nations’ Sustainable Development Goals, are framing a new investment agenda which is increasingly being championed by a younger demographic cohort. For example, in the U.S., 93% of Millennials agree that social or environmental impact is important to investment decisions.[1]

With Millennials in the U.S. representing 79.8 million, or 25% of the U.S. population, they are projected to exceed baby-boomers to represent the largest demographic group
in the country.[2] U.S. millennials are also in line to inherit U.S.$30 trillion in wealth over the next 30-40 years, implying an ever deeper adherence to ESG investment techniques in the years ahead.[3]

The financial materiality of climate risk has also become a defining ESG risk, and opportunity, for multiple stakeholders. All regions are exposed to the three channels of climate risk, namely - physical, litigation, and transition risk.

In Asia, five out of six people live in an area vulnerable to extreme weather events.[4] In the U.S., 250 weather and climate disasters have hit the country between 1980 and July 2019 with a cumulative loss of US$1.7 trillion, which equates to 8% of U.S. gross domestic product (GDP) in 2018.[5] While, in Europe, the highest overall economic losses in absolute terms from weather and climate-related losses since 1980 have been registered in Germany, Italy and France.[6]

When it comes to litigation risk, we find that the law courts are becoming a new instrument to enforce and accelerate climate change action. To date, 1,200 climate change cases have been filed across 30 jurisdictions including Australia, the UK, New Zealand, Brazil, Spain, Canada and India. However, the lion’s share of climate change litigation is taking place in the U.S., with over 950 cases filed there so far.[7]

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1. Goldman Sachs (April 2017). The PMs Guide to the ESG Revolution

2. PEW Research Center (April 2017)

3. Accenture Consulting (2016)

4. Climate Central (November 2015). Rising seas threaten land home to half a billion

5. NOAA National Center for Environmental Information (NCEI) U.S. Billion-dollar weather and climate disasters (1980-2019)

6. NatCatSERVICE, Munich Re; European Environment Agency (April 2019). Economic losses from climate-related extremes in Europe

7. Clyde & Co (March 2019). Climate change – the evolving landscape of litigation

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