EU green standards prompt decline in ‘sustainable’ assets, find SIFs

Latest Global Sustainable Investment Review sees continued growth in ‘sustainably’ managed assets, except in Europe

Europe, the region with the most ambitious rules for sustainable finance, has bucked the global trend by seeing a fall in assets being managed under sustainable strategies since 2018, according to figures released today. 

The latest biennial review from the Global Sustainable Investment Alliance (GSIA), which represents the world’s Sustainable Investment Forums, or SIFs, shows a 13% (€1.5bn) decline in eligible assets over the period – compared with growth across all other regions.  

The change was attributed to tighter definitions of ‘sustainable investment’ in Europe due to a raft of new ESG-related rules in the EU. Eurosif, the SIF representing EU-based investors, updated its methodology to reflect those developments. 

Other GSIA members include responsible investment bodies in the US, Japan, Canada and Australasia. Each GSIA member contributing to the study used a different methodology in the collection of data for their region. 

Overall, the report estimates that since 2018 there has been a 15% increase in assets being managed under some sort of sustainable investment strategy, taking the global total to $35.3tn – or 36% – of all professionally-managed assets across the regions covered.

Canada reported the largest increase in sustainably managed assets over the past two years (48% growth), followed by the US (42%), Japan (34%) and Australasia (25%).

GSIA states that the “consolidation” of each members’ work is “made on a best effort basis, based on best available regional data”. 

“[D]ue to methodological differences across regions, and changes in methodologies by re- gions as explained in the text, direct comparisons between regions and with previous versions of this report are not easily made,” it said. 

On the decline in Europe, GSIA explains that some strategies which are seen as eligible in other regions – such as ESG integration – “have become part of the expected practice of all financial products'' in the EU, particularly following the introduction of the Sustainable Finance Disclosure Regulation (SFDR). The incoming SFDR rules, which are currently being phased in, will require investors to report on the ‘adverse impacts’ of their investments. 

The chair of GSIA, Simon O’Connor, who is also Chief Executive of the Responsible Investment Association Australasia, told RI that there are “no fewer investors in Europe doing responsible/sustainable investment than there were two years ago, and in fact, probably the contrary, there may well be more… but now only a portion of those are meeting those higher hurdles around the SFDR definitions”.

In Australasia, the report shows a slowing in the rate of growth for assets being managed under sustainable strategies. Like the EU, the region has seen a push to establish industry standards around sustainable finance – although unlike Europe, this has been led by the region’s financial sector rather than policymakers, and has not yet resulted in formal rules. 

Despite the reported increase in overall assets tracking sustainable strategies, MSCI concluded in a study last week that the combined annual emissions of the world’s largest listed companies remain at the same level as 2013. The data provider warned that the firms have less than six years to get their emissions under control if the world is to avoid the worst impacts of climate change.

O’Connor told RI that going forward “we need to start now honing in on not just growing a market that is committed to sustainable and responsive investment, but growing that portion of the market that is delivering sustainability impacts and outcomes”.