There has been considerable research on the relative performance of responsible investment versus traditional investment strategies. Most of this research suggests that taking into account material environmental, social and governance factors results in investment out-performance.

Deutsche Asset & Wealth Management

Deutsche Asset & Wealth Management, together with the School of Business, Economics and Social Science at the University of Hamburg, undertook a definitive meta-study in 2015 which reviewed more than 2,000 research reports on ESG and corporate financial performance. It concluded that “the business case for ESG investing is empirically very well founded. Roughly 90% of studies find a nonnegative ESG–CFP relation. More importantly, the large majority of studies reports positive findings. We highlight that the positive ESG impact on CFP appears stable over time.”

Harvard Business School

In 2016, the Harvard Business School published 'Corporate Sustainability: First Evidence on Materiality' which concluded that 'firms with good ratings on material sustainability issues significantly outperform firms with poor ratings on these issues. In contrast, firms with good ratings on immaterial sustainability issues do not significantly outperform firms with poor ratings on the same issues.'

Oxford University: Smith School of Enterprise and the Environment

A 2015 meta-study by Oxford University's Smith School of Enterprise and the Environment together with Arabesque Partners, 'From the stockholder to the stakeholder: how sustainability can drive financial performance', noted that:

  • 90% of the studies on the cost of capital show that sound sustainability standards lower the cost of capital of companies.
  • 88% of the research shows that solid ESG practices result in better operational performance of firms and
  • 80% of the studies show that stock price performance of companies is positively influenced by good sustainability practices.

Other research

For further analysis of the relationship between the application of sustainability and corporate governance factors and investment performance-related research, see SRI-CONNECT: Buzz search: General – Investment Performance

Measuring the size and shape of the SRI market (or the level of investor engagement with sustainability and corporate governance issues) is complicated. Forecasting market growth even more so.

We advise any organisation investing into this market to form their own view of the size and growth prospects of the market that is relevant to and addressable by their organisation.

To do this, a firm will typically need to combine:

  • Headline global market metrics (such as those on this page below) with
  • Local market sizing exercises (as detailed on the following pages)
  • A number of private corroborating or moderating indicators - including their own market intelligence

In such market analysis, firms should take account of:

  • Differing definitions & interpretation of responsible, sustainable and ESG investing
  • Differentiated strategies - whereas an engagement strategy may be applied to all assets managed while a thematic strategy may only apply to a single fund
  • The level of self-certification involved in data collection
  • The difference between policy commitment and action
  • The development stage of the surveying organisation

We have given some well-known measures and proxy measures of the market below.

Global SIF report

The Global Sustainable Investment Review is issued every two years by the Global Sustainable Investment Alliance, a group of sustainable investment associations around the world. Members include Eurosif, Responsible Investment Association Australasia, RIA Canada and US SIF.

The most recent version was published in 2016. Its findings have shown consistent growth in sustainable investment around the world, with an estimate of $23 trillion of assets being professionally managed under responsible investment strategies, though this definition has altered over time to become more precise.

Hyperlink to report

Growth of PRI signatories

The UN-backed Principles for Responsible Investment (PRI) was launched in 2006 with six guiding principles for asset owners and managers to incorporate ESG issues into their investment processes.

More than 1,800 organisations have signed up to the principles, representing around $70 trillion in assets under management. Signatories have grown consistently since launch and can be used as a proxy for the growth in the SRI market as investors must report each year on their progress towards implementing the principles and can – in theory – be removed from the PRI if they fail to comply.

PRI Sigs Jan18

Source: UN PRI / About

CDP signatory growth

CDP was set up fifteen years ago as the Carbon Disclosure Project, an NGO which promotes disclosure of climate risks by companies on behalf of signatory investors.

More than 650 asset owners and managers are signatories of CDP, representing around $87 trillion of assets under management – this number decreased last year as CDP began to charge investors a fee to become signatories. The rise in signatories broadly reflects the rise in interest in climate-related issues from investors and can also be used as a proxy for growth in the market.

 CDP Sigs Jan18

Source: CDP

SRI-CONNECT user numbers

SRI-CONNECT, the global online market network for sustainable investment and corporate governance, updates the user numbers and site usage levels on a quarterly basis here.

  • Strengths of dataset: Employed people is a more accurate proxy for underlying activity than policy commitments; free to join (so comprehensive)
  • Weaknesses: The rapid growth of the network (over 8 years); 800+ of the registered users work for listed companies rather than investment organisations; free to join (such that joining is not necessarily indicative of commitment to act)

Source: SRI-CONNECT / Our reach; your opportunity

Overview

The Global Sustainable Investment Review 2016 used data from PRI to estimate the market in Asia ex-Japan at $52.1bn, of which one third was in Sharia-compliant funds.

The Japan Sustainable Investment Forum (JSIF) provided data for the Japanese market, estimating $473.6bn of sustainable investments, the majority of which is focused on corporate engagement and shareholder action.

Other reports

See SRI-CONNECT buzz search: Research on SRI Market Size – Asia

Overview

The Global Sustainable Investment Review 2016 used data from the University of Cape Town’s Graduate School of Business for markets in Nigeria, Kenya and South Africa to estimate SRI assets in those countries at $721bn, of which 94% was managed from South Africa.

Other reports

See SRI-CONNECT buzz search: Research on SRI Market Size – Africa

Overview

Responsible Investment Benchmark Report (RIAA | 2017)

The most comprehensive report on the size of the SRI market in Australia is the Responsible Investment Australasia (RIAA) report which is published every year.

The 2017 report estimates a 9% increase in the size of the market to $622bn, with the fastest growth happening in screening strategies.

Link to 2017 report here

Other studies

For other studies on the size of the market in Australia & New Zealand, see SRI-CONNECT buzz search: Research on SRI Market Size – Australia & New Zealand