The United Nations-supported Principles for Responsible Investment (PRI) has reached 4,000 signatories – a milestone that has been achieved at a rapid pace – and underscores the global surge since early 2020 in environmental, social and governance (ESG)-focused investing as signatory growth is regarded as an objective measure of the overall ESG dynamic.
Within that tally, standouts are the growth in signatories from emerging economies, which rose by 50% in 2020 year on year, 30% growth from the insurance sector, and the biggest annual increase in asset owner signatories, a crucial element of the ESG spectrum.
“Asset owners often lead the way in their markets and are important partners for global investors,” says Lorenzo Saa, chief signatory relations officer at the London-headquartered PRI.
Some 100 asset owners have joined the PRI in the 2020/21 period, bringing the total to 600, with the fastest growth seen among insurers, corporate pensions, endowments and foundations. The PRI’s 132 insurance sector asset owner signatories represent a hefty 60% of the world’s assets under management held by asset owners.
While it took six years for the PRI to achieve 1,000 signatories following its establishment in 2006, it has taken just one year to rise from 3,000 to 4,000 signatories.
This rapid surge can be regarded as a graphic illustration of the secular growth trend in responsible investing, a trend which has only intensified during the unfolding of the Covid-19 pandemic.
That dynamic emerged much to the consternation of naysayers who imagined that the scourge of lockdowns and their brutal economic impact would push ESG onto the back burner. They were wrong, as confirmed by a raft of data, including the PRI signatory total.
Here’s a revealing data point: according to Morningstar, money invested in ESG-focused funds more than doubled last year, accounting for US$51.1 billion of net new invested cash globally.
The signing of the Taikang Insurance Group, one of China’s largest life insurers and asset managers – its subsidiary Taikang Asset Management also signed up – pushed the signature tally past the 4,000 mark.
Taikang’s presence is significant, reflecting the PRI’s push into the Asia-Pacific region, which has lagged the Western hemisphere in embracing ESG as an investment discipline, and in particular into China, which is fast emerging as an ESG thought leader, with government regulations moving the country towards mandatory disclosure on materiality regarding sustainability, social impact and corporate governance.
According to the World Investment Report published by the UN Conference on Trade and Development, around US$5 trillion to US$7 trillion is required to be invested globally every year up to 2030 in order to finance progress towards the United Nations’ Sustainable Development Goals, of which US$3.5 trillion to US$4.5 trillion is needed in developing countries.
The biggest challenge in the latter group is filling the funding gap of US$2.5 trillion to US$3 trillion that cannot be met by capital inflows.
“We see the importance of raising awareness among developed market investors of the opportunities in and the exposure to emerging markets,” Saa notes. “Global investors are key, and it’s important for them to contribute to bridging the gap. But it is also crucial for local investors in emerging markets, especially asset owners, to invest responsibly.”