ESG Outlook: Five Key Trends Are Driving Momentum in 2020

March 2020

 

Interest in environmental, social and governance (ESG) issues and the U.N. Sustainable Development Goals became increasingly mainstream in 2019. Investors worldwide increased capital allocations to ESG-themed solutions designed to deliver measurable societal and/or environmental impacts and competitive risk-adjusted investment returns.

These products included mutual funds, separate accounts, offshore accounts and ETFs. Investors also more systematically incorporated ESG issues into investment processes, recognizing they could capture upside potential, reduce ESG-related risk and still meet their fiduciary responsibilities.

Sustainable investment assets are climbing globally and exceeded US$30 trillion at the start of 2019, up more than 30% from 2016.1 Some regions have demonstrated stronger growth than others within their local currencies. For example, as shown in Figure 1, sustainably managed assets in Japan grew more than 300% during 2016-2018. In the United States, growth from 2016-2018 was slightly higher than over the previous two years (38% versus 33%). Elsewhere, sustainable assets grew, but more slowly than 2014-2016.

Figure 1 | Growth of Sustainable Investing Assets in Local Currency

Growth of Sustainable Investing Assets in Local Currency (2014-2018)

Assets values are expressed in billions. All data in the table is as of 12/31/2017, except for Japan, whose assets are as of 3/31/2018. Source: 2018 Global Sustainable Investment Review, Global Sustainable Investment Alliance.

1 Global Sustainable Investment Alliance. 2018 Global Sustainable Investment Review.

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ESG Outlook: Five Key Trends Are Driving Momentum in 2020

Notes from the ESG Desk

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    When portfolio managers incorporate Environmental, Social and Governance (ESG) factors into an investment strategy, they consider those issues in conjunction with traditional financial analysis. When selecting investments, portfolio managers incorporate ESG factors into the portfolio's existing asset class, time horizon, and objectives. Therefore, ESG factors may limit the investment opportunities available, and the portfolio may perform differently than those that do not incorporate ESG factors. Portfolio managers have ultimate discretion in how ESG issues may impact a portfolio's holdings, and depending on their analysis, investment decisions may not be affected by ESG factors.

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    The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.