CAPITAL FLOWING TO ESG ASSETS CAPITAL FLOWING TO ESG ASSETS

2050

EMISSIONS

NET ZERO

Asset-class-specific frameworks are likely needed to bring ESG risk and impact analysis to non-equity investments.

Another challenge is a gap in regulatory standards, which have primarily focused on sustainability issues for listed equities.

Green Bonds

Cumulative GSS+ volumes reached USD 417.8 bn in H1 2022

2017

2018

2019

2020

2021

H1 2022

200

400

600

800

USD billions

1200

1000

Sustainability

SLB

Transition

Green

Social

Source: Climate Bonds Initiative

GSS+ : Green, social, sustainability, sustainability-linked, and transition labelled debt.

In fixed income, for instance, the green bond market hit a high of $509 billion in issuance in 2021, more than one-and- a-half times the $294 billion in 2020, and on its way to a forecasted $1 trillion in 2023. In 2022, green bond issuance has totaled $243 billion.

particularly for private and fixed-income assets. In a survey by the CFA Institute, 71% of industry roundtable participants said alternative data “have the potential to improve the robustness of sustainability analysis.”

Source: Climate Bonds Green Bond Database

Source: CFA Institute

The flow into ESG funds is feeding through to underlying equity and fixed income markets.

This growth has come despite a lack of data in some corners of the ESG universe,

UK’s Green Gilts’ Greenium

Capital flowing to ESG assets

the value of assets now managed by asset managers and owners committed to running them along sustainable lines

Source: UN’s Principles for Responsible Investment (PRI) (as of 2021 latest figures available)

$120 tn

Propelled by new regulatory schemes in Europe, capital is flooding into ESG funds, putting intense commercial pressure on asset managers to build their sustainable investing teams, launch new ESG funds and re-label existing funds. As of June 2022 some 5,000 asset managers and owners have now signed up to the UN’s Principles for Responsible Investment (PRI). That commits them to six principles intended to integrate ESG issues into investment decisions, where consistent with their fiduciary duties. Notably, though, these commitments are not always followed by action, as the PRI put 185 of its signatories on notice in 2018 for failing to take their commitment seriously enough.

PRI Signatory Growth 2006-2021

2006

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

500

1000

1500

2000

100

2500

120

3000

3500

Assets under management (USD trillion)

N° Signatories

4000

4250

140

Assets under management

Number of signatories

Asset owner's assets under management

Number of asset owners

Source: PRI

+17% Year on Year

Signatories Invested in Private Equity

UKI

France

Netherlands

Nordics

Southern Europe

Canada

Germany & Austria

Switzerland

Japan

Australasia

BeLux

Rest of Asia

Africa

Brazil

Latam

China

CEE & CIS

Middle East

200

400

600

800

100

1000

120

1200

Signatories Invested in PE

AUM ($bn)

1400

160

140

Signatories invested in PE

UKI: United Kingdom and Ireland CEE: Central and Eastern European Countries (Albania, Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, the Slovak Republic, Slovenia, Latvia and Lithuania) CIS: Commonwealth of Independent States (Armenia, Azerbaijan, Belarus, the Kyrgyz Republic, Kazakhstan, Moldova, the Russian Federation, Tajikistan, Turkmenistan, Ukraine and Uzbekistan)

PE AUM $bn

Source: PRI reporting data, 2020

Even out of the public eye, in private markets, ESG assets and PRI signatories are growing.

This green investment boom has increased the capital available for scaling up decarbonization technologies and led, in some cases, to somewhat lower financing costs for businesses considered green and bond issues earmarked for green purposes. For instance, the UK’s first green gilt – raising £10 billion for green projects in September 2021 – broke green premium (or ‘greenium’) records for cutting the cost of capital. Trading at 7.5 basis points (bps) over the June 2032 gilt, it was judged to have reduced the cost of finance by 2.5 bps, or 0.025% (based on an interpolation of where the UK’s on-the-run 2031 and 2035 gilts were trading).

Source: IFR (International Financing Review)

N° Signatories

UKI

France

Netherlands

Nordics

Southern Europe

Canada

Germany & Austria

Switzerland

Japan

Australasia

BeLux

Rest of Asia

Africa

Brazil

Latam

China

CEE & CIS

Middle East

800

600

400

200

1200

1000

1400

PE AUM $bn

Source: PRI

Signatories invested in PE

Assets under management (USD trillion)

100

120

160

140

USD billions

2017

2018

2019

2020

2021

H1 2022

200

400

600

800

1000

1200

Green

SLB

Social

Transition

GSS+ : Green, social, sustainability, sustainability-linked, and transition labelled debt.

Source: Climate Bonds Initiative

Sustainability

Assets under management (USD trillion)

N° Signatories

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2000

1500

1000

500

3000

100

3500

120

4000

2500

140

4250

Assets under management

Number of Signatories

Asset Owner's Assets under management

Number of Asset Owners

Source: PRI

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