According to the Global Sustainable Investment Alliance, $23 trillion was being responsibly managed as of 2016, up 25 per cent from 2014. Nearly two thirds of that ($15 trillion) was negative or exclusionary screening, with 45 per cent ($10.4 trillion) in ESG integration strategies. Impact investing – investing in a company with a view to generating a measurable environmental or social impact alongside a financial return – was a smaller but the fastest-growing category.
One of the biggest challenges facing the sector is the lack of clarity about what constitutes good corporate behaviour and what constitutes an ESG fund. The nebulousness has left the door open to “greenwashing”, when corporates and investors exaggerate or misrepresent their ESG credentials, essentially enabling them to win investor support on false pretences. For example, a “closet” index-tracker fund might well own shares in oil firms, tobacco manufacturers and banks that fund fossil fuel extraction, but still be able to mislead investors by characterising itself as environmentally sound.