Europe first. And exclusions first, too. In my view, these are the two key elements emerging from the much-awaited Global Sustainable Investment Review 2016 that the GSIA-Global Sustainable Investment Alliance issued just a few weeks ago.
Over the next two years, whatever analysis on Sri at a worldwide level will be necessarily grounded in this report. What came out of the report, in fact, is a sort of world map of Sri. And a world ranking, too, where you see not the United States but Europe on top: the Old Continent is worth 53% of Sri total assets, the United States 38%. World Sri assets are worth 23 trillion dollars.
Let’s take a look at what kind of strategies Sri assets are mostly subjected to. The report identifies seven investment strategies you can refer to as Sri: negative/exclusionary screening, positive/best-in-class screening, norms-based screening, Esg integration, sustainability themed investing, impact investing, engagement and shareholder activism.
The dominant Sri strategy by far, involving 15 of the 23 trillion dollars, is negative/exclusionary screening. In Europe, exclusionary screening affects 11 of the 12 trillion dollars of Sri assets.
Why do I believe that these two elements – Europe’s leadership on one hand, the predominance of exclusionary strategies on the other hand – are the ones with the greatest significance?
Given the above mentioned data, Europe now has the responsibility and the honor to drive the advancement of Sri at a global level and to step it up. Especially in Europe, there’s no doubt Sri has gone mainstream: more than one every two euro of assets professionally managed in Europe are affected by Sri strategies. Mission accomplished? I’d rather say that’s not a final destination but a (great!) starting point. In other words: time has finally come for Sri to go beyond mainstream and start influencing policy makers and regulators when it comes to how the asset management industry and more generally the financial markets work. I think you can read in that sense the work that the High-Level Expert Group on Sustainable Finance, set up by the European Commission in late 2016, is going to do over the next months. The Group’s Interim Report is scheduled for the end of June.
Let’s now address the second big issue: negative/exclusionary strategies. These are the strategies with which Sri arose and gradually but consistently grew for decades. Then, various and different ways of integrating responsible, sustainable, ethical, Esg (environmental, social and governance) issues in financial investments developed in a fantastic way. And they’re still developing. Nobody knows what’s going to happen in the magic realm of Sri and everyone with a passion about Sri is curious and excited in that respect.
Unfortunately, such a development was not matched by an equal evolution about the ability to explain and above all to communicate these increasingly sophisticated strategies, their main characteristics, their ultimate goals. As a result, these strategies remain fundamentally unclear to the large majority of investors.
On the contrary, negative/exclusionary screening shows a great advantage: it’s so clear. You can immediately understand what you’re doing when you invest according to it. It’s clear what you want, what you do not want, the ideal world you wish to determine with your investments. Take for instance the growth at the speed of light of the fossil fuel divestment movement, the biggest phenomenon ever in the field of sustainable and responsible investment: in just a handful of years, about 700 big investors controlling more than 5 trillion dollars in assets committed to divesting their money from fossil fuels (coal, oil and gas). And Europe is leading also in that field.
With regard to the fundamental importance of launching clearly understandable messages, the very last thing I’d like to highlight is the following one. During the web media conference for the launch of the GSIA’s report, Lisa Woll, CEO of Us Sif, said: regardless of who won the election, we would see an increase in sustainable and impact investing assets.
I think this statement could be explained as follows: Sri is here to stay. Sri is unstoppable. And “unTrumpable”. I would add: maybe we’re just at the beginning of the Sri era.
(the Spanish version of this post has been originally published on AGORA, Inteligencia colectiva para la sostenibilidad)