On the way to the mainstream: The future of ESG investments [Download].

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In the last decade, a quiet revolution has taken place in the world of investment; now environmental, social and governance (ESG) investments are becoming mainstream. By the end of 2016, ESG investment strategies accounted for approximately one quarter of all professionally managed assets, and our research suggests that this number will only increase.

Click here to download the full Vantage report.

Although responsible investing has gained momentum since the 2008 financial crisis, two landmark agreements marked a turning point for the movement: the signing of the UN Sustainable Development Goals (SDGs) by world leaders in September 2015, followed by the Paris Climate Change Accord later that year. These ambitious charters, which are designed to address the most urgent problems facing humanity – including climate change, acute hunger and poverty – require investments of more than $7 billion per year (or twice the US federal budget) – mainly in developing countries.

It is encouraging that private funding is increasing. In the period following the adoption of these agreements, the volume of assets covered by the Principles of Responsible Investment (PRI) has increased by 40%. Institutional investors – including the world’s leading sovereign wealth funds, pension funds and insurance companies – are increasing their ESG-oriented investments. Philanthropic foundations are now linking their investments to SDGs, and in the US, while the current government has withdrawn from the Paris Agreement, nearly 2,000 investors and companies have said, “We’re still in it.

Where financiers are not forced to act, they are pushed. The same institutional investors are demanding greater disclosure of ESG issues or are taking action through shareholder resolutions; some are beginning to divest controversial sectors such as tobacco, weapons and coal. Regulators in France (and soon throughout the EU) are requiring companies and financial institutions to report on their ESG performance; in the US, companies are increasingly facing climate-related litigation.

There is also much positive news to report. Investment and index performance data show that incorporating ESG information can actually increase returns and reduce volatility; our survey participants and the investors we spoke to agree that integrating ESG information can improve the risk-return profile of investments and give investors a “new picture”.

Click here to download the full Vantage report.

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