Esg Investment Report Case Solution
ESG Investing in United States & Europe
ESG (Environmental, Social and Governance) investing refers to the sustainable investing, which aims at generating positive returns over the investments and contributing towards the long term impact on the society, business performance and the environment. ESG is defined by the Financial Times Lexicon as a generic term, preferred by investors for evaluation of the corporate behavior and the financial performance of the corporations in the capital markets (ADEC Innovations, 2019). Moreover, it is added that ESG refers to a part of the non-financial performance indicators, which includes key issues related to the corporate governance, ethical and sustainable issues.
According to the money managers, who prefer to use the ESG factors in their investment analysis, the changing climatic condition has become a top concern or a leading criteria for evaluation, before money is put into investment. The amount of professional money invested, according to ESG criteria, has increased sharply, as measured by a group of investment. The invested money in the United Sates according to ESG criteria has reached to $51.4 trillion, which represents 33% of the total United States Assets under the professional management.
Moreover, a report on the “US Sustainable and Impact Investing Trends” issued by the US SIF Foundation in 2020, revealed that the sustainable investing assets in the United States have reached $17.1 trillion, with an increase of 42% as compared to the fiscal year 2018 (Carlson, 2020). The group also claimed that the sustainable investing not only generates financial returns but it serves as creating an environmental and social good. The ESG investing covers each and every practices followed in the industries, such as implementation of fair labor practices so that the independent corporate governance can be promoted and reduction of the harmful materials impacting the environment.
The report published by US SIF revealed that in 1995, the United States’ sustainable assets amounted to $639 billion and these assets have grown ata compounded annual growth rate of 14%, as shown in figure below.
However, while talking about the ESG investment, the United States is considered a laggard in comparison to Europe. On one side, the United States’ money managers are struggling to create a trade off between the consideration of environmental, governance and social factors and generating returns over the investment, however, the European firms have taken the lead in the booming sustainable fiancé industry, which has seemingly reached to a $40 trillion industry (Marsh, 2020).
The data shows that Europe enjoys a dominant position in the debt market, however, the sales of the United States green bond has declined by 5%. Similarly, the in sustainable funds, the European offerings received more inflows, which were five times larger than the inflows received by the United States’ offerings in sustainable funds. It is estimated by the Price ware house Coopers LLP that the 70% of the global ESG mutual fund assets are held by European firms.
The contentious politics and regulations have led to the laggard –position of United States in ESG investing. In Europe, the green investment is being promoted with great enthusiasm, however, the administration of President Donald Trump has discouraged the green investment. Moreover, a recent rule has been passed by the US labor Department, which has created more difficulties for the retirement plan fiduciaries to transfer their money into the ESG related funds.
Though United States is at a lagged position as compared to Europe in the ESG infrastructure, but the analysts and executives estimate that this lagged position is just a matter of time, until the world’s largest economy take momentum gains. It is because the ESH investment potential has risen due to wildfires in California in combination with income inequality and social unrest……………….
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