NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, June 26, 2019

By Eshe Nelson

The European Union says that the region needs an additional €175-290 billion in private investment a year (pdf) to become a “climate-neutral” economy by 2050. (That’s $199-330 billion.) That may sound like a lot, but it barely puts a dent in the $5-7 trillion that the UN thinks is needed every year to achieve its Sustainable Development Goals by 2030, which target the environment in addition to a host of other issues.

To plug the gap, “sustainable investing” is spreading from a niche area of the financial sector into the mainstream. Investing along environmental, social, and governance (ESG) criteria is one of the fastest-growing strategies in finance. ESG is not quite as intensive as “impact investing” (investments that must produce a specific and measurable environmental or social impact) but it’s more than just negative screening (cutting out tobacco or firearms stocks from portfolios). Within ESG, it’s the “E” that’s gaining the most traction as global protests and severe weather events push climate policy higher in the public’s consciousness.

But the rapid growth of the field—by some measures, assets committed to sustainable investment strategies represents half of all professionally managed assets in Europe—is raising concerns about “greenwashing.” The industry has grown organically, with organizations deciding for themselves what counts as an environmentally sustainable, or “green,” investment.

Photo courtesy of geralt.