According to the European Commission, research on future scenarios suggests that climate changes could have notable effects on environments, plants, animals, and sectors that depend on agriculture, aquatic life, energy, tourism, and water. In line with this position, countries/ international agencies are ardently pushing for a renewed commitment to sustainability via initiatives like the UN SDGs1, the COP2 climate summits, and the Glasglow Financial Alliance for Net Zero (GFANZ). In addition, a few fund managers have mandates that are influenced by ESG (Environmental, Social, and Corporate Governance) considerations. Therefore, this class of investors is likely to pay greater attention to fundamentally sound and value-adding companies that simultaneously tick the boxes on ESG.
The increasing ESG focus is also highlighted by the material growth in the AUM of sustainable funds between FY'2016 and Q2'2020 (See figure 1 below). These AUMs have surged 4.3 times within the review period, with Europe and US linked sustainable funds accelerating by 4.4x on average. Notably, Europe accounted for 74.0%-79.0% of global sustainable funds across the five years.
