ESG investing gains momentum globally, US leads with highest share of SRI assets

Sustainable investing assets in five major global markets grew at a CAGR of 7.3% to $35.3 trillion at the start of 2020, beating the CAGR of 3.5% for professionally managed assets over the past two years, the Global Sustainable Investment Alliance (GSIA) said in its fifth biennial report GSIR-2020. CAGR is short for compounded annual growth rate.

The report maps the state of sustainable and responsible investments (SRI) of five major financial markets- Europe, the United States, Japan, Canada, Australia & New Zealand (Australasia).

US had the highest share of 48.4% of global SRI assets at the start of 2020, up from 39.1% in 2018. On the other hand, Europe’s share dropped to 34.0% in 2020 from 45.9% in 2018. US and Europe together continued to represent more than 80% of global SRI assets; while the proportion of SRI assets in Japan, Canada and Australasia remained relatively unchanged over the past two years, showed the GSIA report.

The report added that environmental, social, and governance (ESG) integration emerged as the largest sustainable investment strategy by a market share of 43% in 2020. It was followed by negative/exclusionary screening at 25.7% and corporate engagement and shareholder action at 17.9%.

Simply put, there is a rise in ESG consciousness among stakeholders globally. According to analysts at Kotak Institutional Equities, ESG investing in India is at a nascent stage but it will pick up pace driven by the global growth in this sphere. It should be noted that there is a marked rise in India-focused ESG funds in the recent past. Six new funds based on this theme were launched in 2HFY21 alone.

"We believe the ESG investing trend in India is likely to gather momentum egged on by the global growth in this sphere, and improved sustainability disclosures - with the roll out of a new comprehensive format – Business Responsibility & Sustainability Reporting (BRSR)," said the Kotak report on 20 July. The BRSR is applicable for the top-1,000 companies by market capitalization and will be effective from FY2023.