G20 Green Finance Study Group: Greening Institutional Investment 2016

This paper takes stock of institutional investor experience with mobilising green capital for green investment and mainstreaming green factors across asset classes. It identifies key drivers for action and barriers preventing progress. It reviews investor’s experience within their own organisations as well as with aligning market and policy frameworks with green investment. It suggests possible options for consideration by G20 members.

Green issues are a key component of responsible investment, which is an approach to investment that explicitly acknowledges the relevance to the investor of environmental, social and governance (ESG) factors, and the long-term health and stability of the market as a whole. Globally, support for the Principles for Responsible Investment has grown consistently, from 100 signatories representing US$6.5 trillion in 2006 to 1,380 signatories representing US$59 trillion by 2015. Although the largest number of signatories is in the US (256) and Europe (696), a significant number are in emerging markets including Brazil (57), South Africa (52) and China including Hong Kong SAR (17) .

Key drivers: Investor awareness of the materiality of green issues has progressed substantially since the Rio Earth Summit in 1992 and the launch of the PRI in 2006. There are five key drivers for sustained investor interest in green finance:

  • Long-term value: There is growing belief across the G20
  • including for example CPPIB (Canada) and GPIF (Japan)
  • that consideration of ESG factors is important to long-term value for pension fund recipients.
  • Risk management: This is a driving factor for large asset owners such as CalPERS(US$300 billion in assets), with green risk factors included in investment beliefs as well as for mainstream investment managers such as State Street Global Investors (US$2.4 trillion in assets under management).
  • Client demand: This is growing across markets, including emerging markets. 52% of YouGov survey respondents in Brazil say they would like information on how companies in their funds deal with ESG issues such as climate change, with civil society one driver of beneficiary interest.
  • Strategic policy signals: Investors welcome The Paris Agreement and the Sustainable Development Goals4 as signals of the policy trajectory.
  • Regulatory action: Within the G20, this includes the French Energy Transition Law and SRI fund labelling, as well as Stewardship codes and developments underway at the EU to improve company and investor transparency. Eight countries within the G20 have pension fund regulation covering ESG disclosure and seven stock exchanges have a sustainability listing rule.
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