Sustainable Investment Timeline A short history of Sustainable Investment innovation

A short history of

Sustainable Investment

innovation

Driving better global standards in sustainable investment

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FTSE Russell product development and launches

2003

2005

2004

2006

2003

2001

When the FTSE4Good Index Series launched in 2001 it was regarded by many as a fad. Environmental and social issues were regarded as niche “ethical” concepts that were irrelevant, distracting, or even return-compromising by almost all investment professionals. The trend toward sustainable investment approaches was first seen through the growth in the number of institutions and geographies making commitments and joining initiatives, initially the Sustainable Investment Forum (including UKSIF, EuroSIF, US SIF) and then later the formation of the UN-backed Principles for Responsible Investment (PRI).

2001

Enhanced FTSE4Good Index criteria - supply chain labor standards criteria developed

2002

SUSTAINABLE INVESTMENT AUM $TRILLION

2005

$3.6 T

Global, regional, country policies and regulatory changes

Market statistics and trends

Joined the Principles for Responsible Investment (PRI) as a founding signatory Joined the US SIF: The US Forum for Sustainable and Responsible Investment as a member Enhanced the FTSE4Good Index Criteria - countering bribery research included

Vanguard adopts the FTSE4Good US Select Index, tracked by its Social Index Fund. This becomes one of the largest SRI mutual funds in the world

Enhanced the FTSE4Good Index criteria - environmental management criteria rolled out Joined the UK Sustainable Investment and Finance Association (UKSIF) as a member

Introduction of the United Nations-backed Principles for Responsible Investment (PRI). FTSE Russell a founding signatory

Enhanced the FTSE4Good Index criteria - human rights criteria developed with Amnesty International and market consultation

2004

Source for 2002 - 2010: These figures represent global assets under management that incorporate ESG and are sourced from the EuroSIF 2003, 2006, 2008 and 2010 SRI studies using USD conversion rates as of 22 Nov 2010 Source for 2012 - 2018: These figures represent global assets under management that incorporate ESG and are sourced from the Global Sustainable Investment Alliance's Global Sustainable Investment Review, 2012, 2014, 2016 and 2018

YEARS

$2.6 T

2002

Early years

2006

Launched the FTSE4Good Japan Index FTSE and ISS launch the first ever Corporate Governance index, however following a lack of market usage and challenges over developing a single global methodology it is withdrawn two years later

Launched the FTSE4Good Global Index Launched the FTSE4Good UK, US, and European indexes

2001

The launch of the FTSE4Good follows regulatory changes made in 2000, where UK pension funds take account of Social Ethical or Environmental (SSE) issues in their Statement of Investment Principles (SIP)

Market statistics and trends

2009

2007

Launched a carbon adjusted index adopted by BT Pension Fund, together with Trucost and LGIM. Also partnered with CDP and ENDSCarbon to launch Carbon Strategy Indexes Introduced responsible marketing criteria for infant formula and foods Sir Mark Moody-Stuart becomes Chairman of the FTSE4Good Committee

YEARS

$13.6 T

$6.8 T

Next came, the introduction of the first country stewardship code in the UK, that encouraged investors to deepen their interaction and engagement with investee companies on strategic issues. The UK Stewardship Code was first unveiled by the Financial Reporting Council and other Stewardship Codes have since been adopted in a variety of other countries including South Africa, Switzerland, Italy, Holland, Japan and Malaysia, influenced by the UK version. For many years there was a growth in commitments and policies, but little change in investment practices and actual asset allocation. This period also saw the investment industry start to become aware of climate risks. FTSE4Good introduced climate criteria, carbon adjusted (tilted) indexes were launched, the first green industry classification was developed and the first green bond was issued.

2012

TRILLION

2008

FTSE Russell product development and launches

Global, regional, country policies and regulatory changes

Global Sustainable Investment Alliance (GSIA) starts reporting global Sustainable Investment assets The first Stewardship Code was developed in the UK (Financial Reporting Council) The UK introduces the first mandatory carbon reporting requirements through amendments to the Companies Act, which came into force the following year in 2013

2012

2010

Launched the FTSE Environmental Markets Indexes in partnership with Impax Asset Management Set up the FTSE Environmental Markets Committee. First Chairman was Winston Hickox Joined the Japan Sustainable Investment Forum (JSIF) as a member Launched the FTSE4Good IBEX Index in partnership with the Madrid Stock Exchange (BME) Launched the first green industrial taxonomy; the FTSE Environmental Markets Classification System

The first meeting of the Sustainable Stock Exchanges (SSE) was opened by UN Secretary-General Ban Ki-Moon in New York City

2011

2007

Enhanced the FTSE4Good criteria - selection criteria for nuclear power introduced (replaced an exclusion)

2012

2010

2008

Enhanced the FTSE4Good criteria - selection criteria for uranium mining introduced (replaced an exclusion) Enhanced the FTSE4Good Index criteria - new climate change theme (developed with CDP, WWF & the Climate Group and market consultation) Celebrated 5 year anniversary of the FTSE4Good with David Miliband, UK Government Secretary of State for the Environment; Stuart Rose, CEO of M&S; and Digby Jones, former CEO of the CBI Launched the FTSE4Good Environmental Leaders Europe 40 Index First ever Green Bond (issued by the EIB as the Climate Awareness Bond) is created as a Structured Product giving returns linked to the FTSE4Good Environmental Leaders Euope 40 Index. It raises over 600 million Euros

2009

2012

Launched the FTSE4Good Australia 30 Index Joined the Responsible Investment Association Australasia (RIAA) as a member

2011

$10.1 T

The SIFs combine their work measuring "SRI assets". Global Sustainable Investment Alliance (GSIA) starts tracking assets with an ESG approach via a bi-annual report. More than US $13 trillion assets since 2012

2009

Enhanced the FTSE4Good Criteria - supply chain and countering bribery extension

+US$13

Climate change & investor stewardship

Launched the FTSE ex Fossil Fuels Indexes Launched the new ESG data model which doubled the number of ESG themes and focused on quantitative and sector measures London Stock Exchange Group (LSEG) joins the UN Sustainable Stock Exchanges Initiative (SSEI)

2017

As of April 2018, the PRI had almost 2,000 signatories with combined assets of more than US$80 trillion. These figures are significant and have grown rapidly each year. Since 2013 the PRI has seen its signatories grow by 40% and its associated assets by almost 60%

2017

2014

40%

2018

2014

FTSE Russell product development and launches

2014

2016

2017

FTSE Russell/LSEG represented on EU High-level Expert Group on Sustainable Finance Launched the FTSE All-World ex CW Climate Balanced Factor Index, first smart sustainability index, which was adopted by Legal & General’s Future World Fund for the HSBC Bank UK Pension Scheme defined contribution default equity fund Launched the Green Revenues data model and FTSE Green Revenues Indexes Launched the FTSE JSE Responsible Investment indexes

$22.9 T

US$4

+US$22

2013

The 17 Sustainable Development Goals (SDGs) of the 2030 Agenda for Sustainable Development officially came into force China launched Guidelines on Establishing the Green Financial System The EU High-level Expert Group on Sustainable Finance launches Stewardship code implemented in Hong Kong Stewardship code implemented in South Korea Stewardship code implemented in Taiwan

Source: FTSE Russell's smart beta: 2018 global survey findings from asset owners

Globally, over half of asset owners are currently implementing or evaluating ESG considerations in their investment strategy. Among those who are using and/or evaluating smart beta strategies, 38% anticipate applying ESG considerations to their smart beta strategy of choice

North America

Jack Ehnes, CEO of CalSTRS, becomes Chairman of the FTSE Environmental Markets Committee

Of those larger asset owners (over $10tn) who are using or are interested in smart beta, 57% anticipate applying ESG considerations to their smart beta strategies. The main rationale being to avoid long term risks

+US$18

38%

The Transition Pathway Initiative was launched using FTSE Russell's ESG data The Financial Stability Board releases its Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) report The EU Pensions Directive ("IORP II") was finalized and member states given until January 2019 to implement Stewardship code implemented in Australia Stewardship code in implemented in India Stewardship code in implemented in Singapore

Market statistics and trends

Global, regional, country policies and regulatory changes

The Global Sustainable Investment Alliance (GSIA) has identified more than US$22 trillion of assets that have some form of ESG approach applied to them, with an annual growth rate of c.20% since the GSIA started keeping track in 2012

20%

2016

2013

Stewardship code implemented in Japan Stewardship code implemented in Malaysia

2014

2016

Joined the Responsible Investment Association Canada (RIA) as a member Launched the FTSE Russell Stewardship, Transition and Engagement Program (STEP Change) including the Corporate Peer Comparison tool Launched the FTSE Global Choice Index Series Launched the FTSE Women on Boards Leadership Index Series Enhanced the ESG Ratings - water criteria included Launched the FTSE Russell Green Economy annual trends report Launched the FTSE EPRA Nareit Green Indexes Announced a new strategic partnership with Sustainalytics that complements existing products to provide the market with choice

2015

Launched the FTSE4Good Bursa Malaysia Index FTSE Russell/ LSEG chairs the development of the UN Sustainable Stock Exchange Model ESG Reporting Guidance for exchanges globally. Launched at London Stock Exchange

2018

The United Nations Climate Change Conference, COP 21, held in Paris, was where world leaders negotiated the Paris Agreement, a global agreement on the reduction of climate change Article 173 of The French Energy Transition for Green Growth Law (or Energy Transition Law), marks a turning point in carbon reporting The establishment of the Task Force on Climate-related Financial Disclosures (TCFD) The 2015 UK Law Commission’s Report on the fiduciary duties of investment intermediaries found that consideration of ESG factors by pension trustees was entirely consistent with their fiduciary duty to beneficiaries A revision to the Employee Retirement Income Security Act (ERISA), which sets out the minimum standards for private sector pension and health schemes in the U.S. changed the law to consider that ESG integration is not at odds with a pension scheme’s fiduciary duty

Source: FTSE Russell smart beta survey 2017

2017

Introduction of the PRI's mandatory reporting framework In the UK, under the Amendments to the Companies Act 2006, a number of ESG reporting requirements were introduced, including those for companies listed on the main market of the London Stock Exchange to report their greenhouse gas emissions on a comply or explain basis. This requirement has contributed to UK listed companies having one of the highest levels of carbon emissions disclosure globally

The Global Sustainable Investment Alliance (GSIA) has identified more than US$18 trillion of assets that have some form of ESG approach applied to them

TRILLION

Launched the LSEG ESG guidance for issuers FTSE Russell first asked global asset owners ESG integration questions in its annual Smart Beta survey Launched the FTSE Blossom Japan Index, which was selected for an important passive mandate by the Japanese Government Pension Investment Fund (GPIF) Launched the FTSE Global Climate Index Series Launched the FTSE ESG Index Series Launched the FTSE4Good TIP Taiwan ESG Index FTSE ESG Ratings climate Theme enhanced to reflect TCFD

2018

$18.3 T

60%

57%

YEARS

TRILLION

2018

2016

Nearly two decades after the FTSE4Good Index Series was launched and the landscape has changed beyond recognition, with financial institutions around the world—including pension funds, insurance companies, asset managers and banks—now incorporating sustainable investment approaches into their investment philosophy and processes. From 2015, ESG integration into passive strategies (index design not only engagement and voting) takes off too. However, the step change, which has been evident in the last two or three years, has been in the actions being taken: re-allocating assets and using sustainability parameters in an integrated manner deep within the investment process.

Source: FTSE Russell’s annual trends report, “Investing in the global green economy: busting common myths”

The green economy represents 6% of the market capitalization of global listed companies, approximately US$4 trillion. This represents a significant investment opportunity, approximately the same size as the fossil fuel sector

ESG integration becomes the norm

TRILLION

2015

60%

60% of asset owners in Europe are considering incorporating ESG screens in their smart beta allocations compared to 20% in North America.

PRI mandatory reporting for service providers The EU High-level Expert Group on Sustainable Finance released its EC Action Plan on Sustainable Finance, setting out its strategy for a financial system that supports the EU’s climate and sustainable development agenda European Commission names members of Technical Expert Group on Sustainable Finance, including an LSEG representative Sustainability Accounting Standards Board’s (SASB) codified reporting standards launched with a Market Open at the London Stock Exchange Canada: Federal government appointed an Expert Panel on Sustainable Finance to consult the financial community and draft a report outlining the opportunities and challenges related to sustainable finance and climate-related risk disclosure in Canada

Europe

2013

$30.7 T

Sustainable Investment practices and standards continue to evolve

Institutional investors now have better data and more tools to integrate ESG into their investments than ever before. Looking ahead, the policymakers, regulators and research providers will continue promoting transparency and disclosure in the portfolios of asset owners and their investment managers worldwide.

Learn more about Sustainable Investment data and indexes

Learn more about the FTSE Russell Stewardship, Transition and Engagement Program for Change

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