ESG investing trend gains momentum

This article is part of
Spring Investment Monitor – March 2016

Neville White, head of socially responsible investment (SRI) policy and research at EdenTree, notes: “As an industry we very much tried to develop models to appeal to different constituencies, but in so doing have come up with lots of different terminologies that can be off-putting.”

The sector now seems to be moving more towards the sustainable or responsible investment description, a movement that can be said to stem from a change in pensions legislation at the start of the millennium that obliged pension trustees to review whether ESG risk was material to their pension funds.

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“The tweak catalysed a lot of thinking around risk and how non-financial risk can have a large impact on shareholder value or destruction,” Mr White explains.

“Out of that you got a lot of interest in different areas such as thematic investing, which is fairly niche but clearly of interest to investors who want to be at the riskier end of sustainability.”

But the key megatrend remains climate change and the consequences of a transition to a low-carbon economy, including the potential for stranded assets.


Impax and Google conducted a survey of more than 300 investors with at least £500,000 of long-term savings and investments to establish their attitudes to climate change in the wake of the COP21 conference.:


Percentage of respondents concerned about climate change


Proportion of respondents that have taken the steps of both not investing in fossil fuels and investing in sustainable/clean energy stocks


The proportion that currently have investments focused on sustainability, clean energy and/or energy efficiency

Source: Impax, Google

Hamish Chamberlayne, SRI manager at Henderson Global Investors, notes: “The big picture is that in the next few decades the global economy is going to transform to a low-carbon economy and it will be one of the biggest investment events of our lifetime.”

He explains: “We have a global economy that is roughly $80trn [£56.3trn] and extremely dependent on carbon, so transitioning to an economy where we are much less dependent on carbon will result in enormous disruption to established industries and geopolitical relationships and how the global economy works. In the next 10-20 years there will be huge risks and opportunities.”

Meg Brown, UK business development director at Impax Asset Management, agrees the COP21 event reawakened interest in climate change, but says the underlying trend is of investors looking for a positive use for their money.

“[The industry] grows each year a bit at a time, and it’s certainly gaining more and more traction,” Ms Brown says.

“There are more and more people making personal decisions about their investments in the wake of the pension freedoms, higher Isa limits, investing for children and more women investing. It is steady growth with strong catalysts, such as COP21.”