Sustainable investing growing on pension demand, millennials

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Bloomberg Intelligence October 25, 2017

This analysis is by Bloomberg Intelligence analysts Gregory Elders, Morgan Tarrant and Shaheen Contractor. It appeared first on the Bloomberg Terminal. 

Pension funds’ demands for integration of long-term investment issues and asset managers’ hopes of capturing dollars from millennial and female investors are driving sustainable-investing growth. Japan is poised to power the next growth leg with its huge Government Pension Investment Fund.

Europe leads sustainable assets, Japan poised for growth
Variously labeled as sustainable, responsible or ethical investing, the field encompasses 26% of assets under management globally — almost $23 trillion — according to the Global Sustainable Investment Alliance. Europe leads markets with about half of managed assets considering sustainability criteria, though growth appears to have leveled off (partly affected by methodology changes). Canada and U.S. interest continues to increase, while Japan is rising rapidly on government governance and pension fund efforts.

Sustainable investors breed sustainable companies
Sustainable-investing demand and corporate focus on sustainability go hand-in-hand, as underscored by European investors being the most likely to consider ESG issues, and European companies on average scoring best on sustainability data reporting and ranking. European pension funds, with large asset holdings, long-term horizons and frequent state backing, have been major market drivers. Growing sustainable investing interest in the U.S. and Japan may encourage better corporate engagement in these markets.

Millennials, women lead sustainability-investing value alignment
Millennials and female investors’ rising clout may boost emphasis on companies’ sustainability performance, given both demographics’ stated concerns. Of all groups, millennials lead in terms of social-impact investing interest (80%) and in follow-through on their concerns, with 28% making such investments, based on a U.S. Trust survey of high net-worth investors. About 25% of baby boomers and men held similar views. Millennials may find they outgrow those sentiments as their parents have done.

Low ESG penetration offers wide-open market for new competitors
ESG assets provide an opportunity for new competitors, with a fairly fragmented market that’s not dominated by the usual players. BlackRock and Vanguard, which typically dominate other markets, account for only 2% of ESG assets, indicating a wide-open market for other asset managers. Credit Agricole and subsidiary Amundi lead with 12% of assets incorporating ESG strategies, followed by Parnassus Investments, DNB, KLP and BNP Paribas, managing 4-7% of ESG funds.

Originally published by Bloomberg Intelligence on October 25, 2017