Sustainable Investing: An End of Year Review

• Sustainable investments now account for a third of all U.S. AuM. 

• The Biden Administration’s environmental and social commitments are expected to bring even more success to sustainable investing in the coming years. 

• Looking ahead, it will be important to fully incorporate sustainable investing into governmental bodies. 

Growth in Sustainable Investments

2020 has proven to be a historic year for the sustainable investment industry. A recent report from the Forum for Sustainable and Responsible Investments finds that the proportion of sustainable AuM has increased by 47% from 2018 to 2020. Now, it is estimated that there are over $17 trillion in sustainable investments, amounting for over 33% of total US assets under professional management. Sustainable investments through exchange traded funds (ETFs) experienced especially high growth, increasing over 200% in the same time period. 

Another important growth factor is that different types of sustainable investing has grown more than others. Traditionally, sustainable investing is segmented into environmental, social, and governance, sometimes referred to as ESG investing. Within these three categories, “E” and “G” experienced the greatest growth, with environmental increasing by 58% and governance increasing by 47%. 

Looking Ahead to 2021

The extreme growth is expected to continue into 2021 and the decade to come. The transition to the Biden Administration may bring an especially added boost to this industry. Firstly, the president-elect and his team has already publicly committed to addressing social and environmental issues, such as carbon emissions and gender equality in the workforce, placing the issues that are intrinsic to sustainable investing at the forefront of global politics. Biden plans to rejoin the Paris Climate Agreement therefore bolstering the environmental section of ESG factors, leading to increased investment and support. Expanding on this topic, the CEO of the Principles of Responsible Investment (PRI) stated “President-elect Biden’s administration understands it needs to work with the private sector to drive climate action. That’s why I feel really positive about the ESG space.” With such factors in mind, many experts are especially hopeful that the Biden Administration will stimulate the already unprecedented growth ESG and sustainable investing has experienced in the past decade. 

Key Areas to Improve in 2021

Looking forward to 2021, there are also some important areas for growth to ensure the continued success of sustainable investing. Firstly, there has been a push to create a United States Office of Sustainable Finance and Business. Not only would such an organization be able to create uniform standards on ethical investment practices, but it would be able to serve as an oversight body to regulate the many different forms of sustainable investing that exist today. Currently, as sustainable finance is relatively new within the greater finance industry, it lacks standardized requirements and regulations, making the need for a centralized office extremely high. Secondly, past experts have also recommended the introduction of executives well versed in sustainable investing in existing governmental bodies such as the Securities and Exchange Commission (SEC) and the Department of Labor (DoL). Given that these bodies deal with anything from investment regulation to retirement plans, incorporating sustainable investing can be an extremely beneficial tool in the coming years. All in all, sustainable investments have proven that they are here to stay, making building off this momentum an important priority for years to come.