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ESG

ESG investing soars globally, Opimas report says

ESG investing is skyrocketing globally, with a growing number of investors implementing strategies that include ESG criteria of varying quality and complexity, according to a report by capital markets consultant Opimas.

The report, "ESG Data: Mainstream Consumption, Bigger Spending," estimates that the responsible investment market reached $30 trillion in assets under management in 2018, up 30.4% from 2016. Opimas projects that figure will grow to $35 trillion by 2020.

The report recognizes seven types of responsible investment strategies: negative or exclusionary screening, ESG integration, corporate engagement, norms-based screening, positive screening, sustainability-themed investing and impact investing.

In 2016, negative screening represented 66% of responsible assets under management, while ESG integration accounted for 45%. But asset managers are currently opting for more sophisticated strategies that couple exclusions of controversial industries with ESG integration and a positive or best-in-class screening approach.

"We are at the infancy of the ESG market," said Axel Pierron, managing director and author of the report, in a phone interview. "Most assets have been allocated (to ESG) through negative screening, which does not drive change within an industry."

Mr. Pierron added that only 2% to 3% of assets allocated to ESG is through positive screening.

"Positive screening is what drives better behavior from companies," he said. "With positive screening, you're selecting stocks within (say) the oil industry, but you're selecting the best-in-class within the oil industry."

The report also reveals that ESG indexes are doing well in both equities and fixed income. Global spending on ESG indexes was estimated at $130 million in 2018. And with an annual growth rate of 37%, Opimas predicts that figure will reach $240 million by 2020.

Meanwhile, the ESG fixed-income market is being driven by the enthusiasm generated by green bonds as well as social bonds. With a compound annual growth rate of 85% over the past five years, the green bond market was expected to exceed $150 billion in new issuance in 2018.