State Street CEO sees 2021 as the year 'the tide turns' for ESG investment

Amount of sustainable debt issued last year grew 29% to $732.1bn, according to BloombergNEF

A socially-distanced crowd attends this year's Future Investment Initiative conference in Riyadh. Courtesy: the Future Investment Initiative 

The next 12 months will represent a sea change in investor attitudes towards responsible investing, the chief executive of one of the world's largest asset managers said.

"I think 2021 is going to be the year where the tide turns," Ronald O'Hanley, chairman and chief executive of State Street Corporation said at the Future Investment Initiative conference in Riyadh on Wednesday evening.

"The investors want this ... they recognise that it needs to be part of their investment risk framework. And what they're looking for is the measurement infrastructure, the projects, the products," said Mr O'Hanley, whose US-based company is the world's third-largest money manager, with $3.5 trillion of assets under management as of December 31.

"So I think you'll go from a sense of maybe a few years ago that there's not enough money interested in this, to there's plenty of money interested in it."

Investors are becoming more discerning about whether the projects they are offered are the right investments and if they actually achieve the benefits expected, Mr O'Hanley said.

ESG investing is growing in significance. According to the Forum for Sustainable and Responsible Investment, the amount of US-domiciled assets under management using sustainable investing strategies grew to $17.1tn at the beginning of last year, up from $12tn in 2018. They now account for about one-third of assets under professional management in the country.

The amount of sustainable debt – green bonds and loans – issued last year grew to $732.1bn, a 29 per cent year-on-year increase, according to BloombergNEF.

The main issue faced by the industry remains one of standards. A plethora of benchmarks have been developed by different bodies over the years, all of which use their own definitions. Efforts are being made by a number of bodies to harmonise terms, with the European Union currently drawing up its own taxonomy and the World Economic Forum this week stating that 61 companies employing more than seven million people had signed up to its set of metrics.

"There are a lot of efforts to really try to bring ESG standards and taxonomy into a more standard kind-of state," Adena Friedman, the president and chief executive of Nasdaq, said. Giving investors a common method for measuring investments and companies a common way to report "would be the best thing that we could do for the future of ESG investing," she said.

The IFRS Foundation, the non-profit body that looks to set global accounting standards, recently held a consultation on developing global sustainability rules, which is "worth paying attention to", London Stock Exchange Group's chief executive, David Schwimmer said, particularly because of the role it already plays in global governance and its links to securities regulators.

"I think it's really important to achieve this kind of global consensus. It would be great to have alignment on a global framework," Mr Schwimmer said.

Speaking on a separate panel, Sarah Al Suhaimi, chairwoman of Saudi Arabia's stock market, Tadawul, said the bourse is working on its own set of guidelines.

"ESG is on top of our list. We are working right now on developing our own ESG standard for our listed companies to comply with. We see the demand on this increasing from local and international investors."

There is a "growing ambition around the world to take more action to address climate change, to put more capital to work to address climate change", Mr Schwimmer said.

"We're seeing it from market participants, we're seeing it from regulators, we're seeing it from politicians. We're seeing the assets under management growing in Asia Pacific, the US and EMEA."