Global Trustee and Fiduciary Services News and Views Issue 50

Prime, Futures and Securities Services | Sustainability and ESG 14 In the US, over one-fifth of professionally managed funds, or a total of USD8.7 trillion, consider ESG factors. 4 This figure is up from USD6.57 trillion in 2014 according to the U.S. Forum for Sustainable and Responsible Investment (US SIF) 2016 SRI Investing Trends Report. 5 A much smaller proportion is in impact investments. According to the Global Impact Investing Network’s 2017 Annual Impact Investor Survey, capital invested in such investments rose by 17% last year from USD22 billion to USD26 billion. 6 The Asia-Pacific region has most recently begun to focus on sustainability and ESG. In 2016 for example, the People’s Bank of China (along with six other government agencies) issued China’s “Guidelines for Establishing the Green Financial System”. 7 The Asset Management Association of China (AMAC) also outlined ESG proposals in a consultation published in July 2018. 8 Asset Management Product Developments Regardless of whether you think sustainable investing is a good thing or not, impressive growth under management has been reported. It states in Pictet Asset Management’s latest secular outlook, that ESG has become one of the fastest growing segments in international investment, with assets embedding those factors growing at a pace of around 12% per annum 9, 10 . UBS Asset Management is placing sustainability and environmental concerns at the centre of its entire active fund range. All UBS portfolio managers will, by the end of 2018, have access to ESG data provided by internal analysts. 11 Further in the asset management space, Amundi launched the world’s largest emerging markets green bond fund with the International Financial Corporation. The Luxembourg- domiciled fund Amundi Planet Emerging Green One aims to deploy around USD2 billion into emerging markets green bonds by the end of its seven-year investment period up until 2025 by reinvesting proceeds. More recent development comes from Morgan Stanley Investment Management which has launched a sustainable equity fund, part of a Luxembourg-based SICAV. The portfolio for this fund excludes companies for which sectors including tobacco, alcohol, adult entertainment, bulk commodities and fossil fuels account for more than 10% of revenues. Vanguard Group has also made regulatory filings to launch two green ETFs, whilst BlackRock is planning to make all its fund managers consider ESG factors when they invest, regardless of whether they have a specific sustainable investment objective. 12 These form some of the most recent examples that can be seen as falling into the camp of believing that investing with a “conscience” is fully compatible with generating long-term returns. ESG continues to gain traction in the voting space Recently, institutional investors boasting some USD26 trillion (EUR22.3 trillion) in assets have urged leaders from the Group of Seven (G7) nations to double down on their pledge to cut down greenhouse gas emissions by phasing out coal power entirely. 13 “The global shift to clean energy is under way, but much more needs to be done by governments,” the group of 288 investors said in a statement ahead of the G7 summit held in Canada on 8-9 June 2018. 14 In 2017, climate change resolutions received shareholder support at energy companies for the first time. Asset managers such as BlackRock, Vanguard and State Street Global Advisors have all added their voice as passive investors. To date in 2018, a third of ESG resolutions have related to climate change issues, but there’s still some way to go towards changing voting cultures. Last year, the Principles for Responsible Investment (PRI) announced the launch of its proxy vote declaration system. 15 Even if some ESG resolutions fail, proxy voting remains a way for shareholders to put pressure on companies so they can appreciate the importance of the issues at stake. It’s lit to be green — just ask the younger generation According to one white paper, almost 9 out of 10 millennials (86%) are interested in sustainable investing, compared with three-quarters of individual investors overall (75%). This heightened interest is likely tied to millennials’ strong belief that they can make a positive difference with their own investments. 16 It’s impossible to pinpoint a single lightbulb moment in time when the younger generation tagged sustainability as “lit”, but looking at