Sustainable investment must extend beyond investor commitments

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While sustainable investment is clearly becoming a significant force in global capital markets, the industry is plagued by accusations of ‘greenwashing’. To avoid distrust, therefore, investors must offer products that are investing responsibly to the highest standards, that are transparent, and true-to-label.

We think there is cause for optimism as responsible investors increasingly seek out products that deliver positive, measurable social and environmental outcomes and, at a minimum, avoid harm to people and the planet.

As the report highlights, this is an industry in transition, with variations in the scale and growth of sustainable investment in different regions. Many regions continue to see strong growth in sustainable assets under management – most notably Canada, the United States and Japan.

At the same time, other regions are slowing down their rate of growth or have seen a reversal – Europe and Australasia in particular. In both cases, this is largely due to changes in how sustainable investment is defined, either by law, as in the case of the EU; or by rising industry standards, as is the case in Australasia. Along with the Chartered Financial Analyst (CFA) Institute currently developing global industry standards for ESG disclosures, the trend towards standards and regulations is improving the quality of sustainable investment products.

Greenwashing tops investors’ concerns around ESG

Investors are moving en masse to put in place net-zero emissions targets for 2050 as evidenced by the rapid uptake of net-zero institutional investor alliances, such as the UN-convened Net-Zero Asset Owner Alliance and the Net Zero Asset Managers Initiative. Encouragingly, we are seeing a record number of investors supporting social and environmental shareholder resolutions on issues as diverse as dismantling racism to overhauling boardroom composition to ensuring expertise on climate change.

Despite these actions and such significant sums of capital committed to sustainable investment, we are still operating in a world that is far from sustainable. We remain a long way from being on target to achieve Paris Agreement commitments, or delivering upon the UN’s 17 Sustainable Development Goals, both of which are calling out the critical role of finance.

The fact is that $35trn would go a long way towards supporting the achievement of a 1.5-degree world. For example, the recently updated EU sustainable finance strategy has estimated the EU needs to invest €350bn more every year in this decade than it did during the last decade to deliver on its own energy system transition targets. The role of policymakers is critical for providing both the targets and the settings to ensure capital aligns with national and international goals. In the absence of these, capital will flow, but more slowly and less efficiently allocated.

FCA targets ratings and data providers in ESG focus; proposes TCFD disclosures from 2022

The global network of sustainable investment organisations that make up the Global Sustainable Investment Alliance (GSIA) each work in their individual markets to progress this transition, ensuring sustainable investment is delivered in a manner aligned with best practice standards, driving positive change in corporate policies and performance and ultimately, aligning with a more sustainable future.

What is clear is that this transition is shifting expectations of sustainable investment; where it is no longer defined just by the strategies involved and commitments published, but critically, by the short- and long-term societal and environmental impacts that investors generate from their sustainable investment approach.

GSIA members are actively operating daily with our vast community of sustainable and responsible investor members working to drive this next chapter, to strengthen the impact of what sustainable investment is achieving, to play a role in contributing to these global commitments, but also to tackle greenwashing and better meet the growing consumer demand for their money to be put positively to work.

It is now time to move decisively into this new chapter of our story to ensure we are harnessing this significant pool of capital and directing it towards achieving the impacts that are both desirable and essential for long-term investment outcomes and a healthy and sustainable planet.

Simon O’Connor is the Chair, Global Sustainable Investment Alliance, and the CEO of the Responsible Investment Association Australasia.