Sustainable Investing Has Arrived

To achieving the Sustainable Development Goals (SDGs) will take between US$5 to $7 trillion, with an investment gap in developing countries of about $2.5 trillion.

A recent report by the Business & Sustainable Development Commission estimates that achieving the SDGs could open up $12 trillion of market opportunities in food and agriculture, cities, energy and materials, and health.

Sustainable investing has benefited from an increase in investor sophistication, with implementation approaches that span the full spectrum from restriction screens to specific proactive engagement. But the rapid entry of new asset managers attracted to this product opportunity may not have kept up with the needs of asset owners. In a previous survey of asset managers, we found that among those not currently engaged in sustainable investing.

This wave of new entrants lacking experience can potentially create a wide disparity in quality, and may explain some of the lower reported satisfaction. In our view, this further underscores the need that asset owners identified for better tools, information and education on sustainable investing.

Given the new momentum in sustainable investing and the resulting growth of product opportunities, it is more important than ever for investors to seek out managers with a clear and well-documented approach to sustainable investing. Asset owners evaluate managers based on firm-level and product-level policies, along with communication and reputation. Beyond offering investment products and helping with reporting, education, and implementation, active third-party investment managers have an opportunity to help customize and align portfolios with owners’ unique objectives.