How much actual ESG capital is invested in stocks? Q3'17 update
Updated: Sep 4, 2019
During Q3 2017 Leaders Arena continued to monitor investor progress and track the integration of Environmental, Social and Governance criteria by asset managers investing in equity assets. Leaders Arena’s proprietary methodology looks closely at a manager’s commitment and evidence of ESG integration.
While companies in Europe are getting ready to comply with the new EU Directive of Non-Financial Disclosure, investors continued to focus their conversations with companies on climate change, governance topics and human capital. Cyber risk is a growing topic in these conversations.
This quarter we acknowledged the strong progress on ESG investing done by Japan’s Government Pension Fund, which is being cascaded down through its mandates to fund managers. As a result, ESG-integrated equity assets under management continued to grow rapidly during this quarter, this time led by investors based from the least expected of investment geographies.
Headlines from our research this quarter:
US based investors continue to account for the largest amount of ESG-focused equity assets under management, $1.1tn, despite its relatively small size compared to non-integrated equity assets under management.
Norwegian and Dutch asset managers represent the most mature ESG markets as more than 90% of equity allocation in these 2 European countries integrates ESG factors.
The average ESG ownership in companies reached 11.8%, accelerating its growth rate to 69% YoY.
Future ESG growth is likely to continue being led by US investors and institutions outside Europe where, as we see in a number of countries, ESG integration is increasingly becoming mainstream investing.
This September 2017 edition of our ESG Equity Market Monitor shows an acceleration of growth in the equity assets that show meaningful integration of environmental, social and governance performance aspects by asset managers. Our research shows that ESG equity assets under management reached $4.36tn as a result of a 83% year-on-year asset growth, the fastest growth rate since 2010.
ESG-led ownership in listed companies, now averaging 11.8% globally, grew 69% during the last twelve months. Many companies are experiencing an increase in the number of ESG-related inquiries from investors and ESG data providers. The challenge for companies is of course setting up a methodology to prioritise communication, content and internal resources.
Asset owners demand, in particular from pension funds and the widespread acknowledgement of the benefits of integrating ESG and engaging with companies on these topics continue to drive the adoption of ESG integration by an increasing number of managers.
The upcoming RI Americas 2017 conference to be held in New York in December will provide a forum for participants to share and hear about ESG integration practices and specific topics most relevant to ESG investing today. Topics at the 2-day conference include climate change, including the final recommendations from the Task Force on Climate-related Financial Disclosures (TCFD), the UN Sustainable Development Goals (SDGs) and company and investor engagement practices. In addition, for the first time at this conference Leaders Arena has partnered with RI to bring corporates to present to attendees on their long-term sustainability strategies. Investors registered to attend so far include Blackrock, State Street, Fidelity and Norges Bank.
The opportunity remains for companies willing to take a proactive communication stance to tell their sustainability story to investors, explaining the business context behind the numbers. Hence the reason why we continue to encourage companies, and in particular Investor Relations professionals, to proactively reach out to ESG analysts. It is important that the ESG investors hear the individual sustainability and governance story directly from the company itself. In particular, details on how the company is making progress, the challenges it is encountering, and how these themes fit in the overall strategy of the company and in their value creation process, can make a huge difference on how a company is perceived and its ability to attract ESG-driven investors.
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Leaders Arena’s proprietary research continuously tracks the key ESG factors driving capital allocation in each sector and geography which helps companies prioritise their responses to ESG-related requests and prepare investor engagement adequately.
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Access our September 2017 ESG Equity Market Monitor report: