GLOBAL - The market for responsible and ethical investments is set to explode to over €500bn (US$788bn) by 2014 but the sector may risk a 'green bubble burst' if sufficient care is not taken, a new report has warned.
The report cited the growth of pension fund investments in the area as a key driver of the trend and praised government initiatives such as the carbon credit trading scheme, subsidies and tax relief for encouraging action in this area.
However, despite the "tremendous potential profit" and rapid development of green financial products, the report's authors warned the sector risked over reaching itself and a repeat of the speculation that led to the 2000 dotcom burst.
Kirti Timmanagoudar, financial analyst, Frost & Sullivan, said: "Too much of money flowing into the green investment market can artificially inflate the prices of the green stocks. This could result in a green bubble burst, which can further lead to huge market losses and capital erosion."
A similar report by RI Metrics, which researched asset managers representing over $12trn of assets under management, showed ESG performance to be growing in importance among investors, but said the industry was "a long way from best practice".
The report revealed "significant inconsistencies" across key themes of strategy, engagement, integration, voting transparency and accountability and said these discrepancies varied both across the industry and within individual organisations.
It also underlined the need for formal training in the way responsible investment strategies and ESG knowledge and research were integrated into the investment process.
The report added a lack of measurement of responsible investment activities undermined the effective management of these concerns.
John Chiang, state controller for California, has also joined the nationwide campaign by institutional investors to call for federal climate change legislation, which Global Pensions reported yesterday (www.globalpensions.com, 20 May 2008).
Chiang, who sits on the boards of both the California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS), which have combined assets in excess of US$400bn, called for a national policy to encourage green innovations and investments and cut greenhouse gas emissions.
Chiang said: "We need a national policy to cut greenhouse emissions, provide appropriate market incentives and encourage green innovations and investments.
"Investors need full disclosure of all environmental risks and opportunities associated with the companies in their portfolios, and that can only be accomplished with clear guidelines from federal regulatory agencies and commissions."
Press reports also indicate the London Pension Fund Authority, which manages £3.7bn (US$7.3bn) of retirement assets on behalf of London boroughs, has decided to screen out managers who fail to comply with ESG criteria and the UN Principles for Responsible Investments (UN PRI), while setting performance targets for ESG investments.
Ex-BHS owner Dominic Chappell has been ordered to pay a total of £87,000 in fines and court costs after he was found guilty of failing to provide The Pensions Regulator (TPR) with information.
The Department for Work and Pensions (DWP) has said it while believes in the benefits of consolidating defined benefit (DB) schemes, there are significant issues to overcome.
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