The level of European assets invested “sustainably” has fallen below 40%, according to the latest research from the Global Sustainable Investment Alliance (GSIA).

Data collected by the European Fund and Asset Management Association (EFAMA) indicate that the figure had fallen from 42% of all assets under management in Europe in 2020, to 38%.

Sustainable investments are defined as either pursuing green or social impacts; applying ESG screens; considering ESG factors on an ongoing basis; investing into a sustainability-related theme; or carrying out stewardship and engagement activities.

“The decline in Europe, from 42% to 38% could reflect increased regulatory requirements and a subsequent move to more conservative fund labelling and reporting,” said GSIA, the convening body for the world’s national and regional Sustainable Investment Forums (SIFs).

The EU’s Sustainable Finance Disclosure Regulation has caused fluctuations in the number of funds that asset managers’ officially define as sustainable over the past two years, with some managers becoming more nervous about making environmental and social claims.

This has become known in the market as ‘greenhushing’, and GSIA noted that the practice was on the rise.

Global picture

Globally, 24% of total assets are run sustainability, the report found. This is a significant drop (14%) from 2020, primarily down to reductions in the US.

James Alexander, the chief executive officer of the UK’s Sustainable Investment Forum, said it was hard to know how much of that reduction was driven by recent political pushback against ESG in the US because, over the same period, US SIF also made its definition of sustainable finance stricter.

“If we compile the European, Canadian, Australian, New Zealand and Japanese data, we have $21trn of assets under management [invested sustainably],” said Alexander. “That’s a 20% increase from the previous version of this report.”

“If we include the US data – with the caveat that the data methodology has changed – that adds a further $8.4trn, to make a total of $30.3trn of sustainable assets under management, which is a headline drop of 14%.”

GSIA noted a growing need globally “for clearer definitions and a more shared understanding around what makes a sustainable asset ‘sustainable’”.  

Yesterday, the Financial Conduct Authority launched four labels that investors could use to define their strategies as sustainable.

The Principles for Responsible Investment is also consulting on a set of entity-level definitions to try and bring clarity to the market. It also recently contributed to a document setting out harmonised definitions for five widely used responsible investment terms.

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