2012 can be described as a good year if we bear in mind the growing appetite by investors to take into account Environmental, Social and Governance factors, when it comes to making investment decisions, despite (or maybe due to) the ongoing economic and market turmoil. Last year also saw the publication of a considerable number of reports on this kind if investment and, along with signs that the processes used to analyze these criteria are becoming standardized and that standards are converging, they point to a sector that is maturing.
According to the latest GSIA (Global Sustainable Investment Alliance) report on sustainable investment in seven regions of the world, asset managers everywhere are talking social, environmental and governance factors into consideration in their choice and management of investments, affecting more than 10 trillion euro’s worth of assets (US$ 13.6 trillion). This figure covers more than 21% of the total assets managed in the regions that fall within the reports’ scope, and comes as conclusive proof that sustainable investment has reached a worldwide scale. The lion’s share of the investment and management of sustainable assets (65%) are located in Europe, and 96% of these types of assets are concentrated in Europe, USA and Canada (Latin America is not included in this study).
To understand the nature of this investment trend we need to look beyond the overall figures. The report shows that the three most usual sustainable investment strategies are as follows: the “Exclusion” method (accounting for US$ 8.3 trillion in assets), involves excluding from investment portfolios specific investments or categories, such as companies, sectors or countries; the “Integration” strategy, which accounts for US$6.2 trillion worth of assets, and includes, explicitly, environmental, social and governance (ESG) risks and opportunities in the traditional financial analysis; and finally, “Engagement and voting on Sustainability matters”, which accounts for US$4.7 trillion worth of assets.
These three strategies are followed by “Norms-based screening” (US$3.0 trillion); this involves selecting assets according to their adherence to and compliance with internationals standards and norms, e.g. the UN Global Compact, and is the most common approach in Europe. Selection of the “Best-in-class”, accounting for US$1.0 trillion worth of assets, assesses the best companies in a given sector, their performance and their efforts and improvements based on ESG criteria. This list ends with “Sustainability Themed” investments or assets linked to the development of sustainability, and “Impact investments”, made by companies, funds or organizations with the intention of generating a social or environmental impact as well as financial returns. These latter strategies account for US$83bn y US$89bn respectively.
Allia, a UK social investment organization, has just launched the first Social Impact Bond. The Future for Children Bond is the first retail bond of this class, and is aimed at improving living conditions for teenagers at risk of social exclusion in the United Kingdom.
These figures are corroborated by other study published at the end of 2012, and in which
Eurosif underscores the fact that two thirds of these investment funds have grown by 35% since 2009.
According to the latest study on Sustainable Investment, “Sustainable Investing: Establishing Long-Term Value and Performance”, published by Deutsche Bank, companies that score highly in terms of Corporate Social Responsibility (CSR) and sustainability have cheaper access to capital and represent less risk for investors.
ACCIONA’s efforts where sustainability is concerned are being recognized by socially responsible investors. The company is a component of a number of sustainability indexes, such as the Dow Jones Sustainability Index, FTSE4Good, MSCI ESG Indices, STOXX Sustainability and the CPLI (Carbon Performance Leadership Index) Europe 300.
So we can safely say that the practices in and commitments to sustainability affect value, and that outstanding sustainability credentials are an ever-increasing important competitive advantage. Similarly, poor, controversial or negative sustainability credentials can lead to divestment by institutional or other investors and harm the companies affected. In a later post, we’ll be taking a look at a trend known as “Sustainable Divestment”.