The continent has some $12 trillion committed to sustainable investing, more than anywhere else. These days, European asset managers’ websites all seem to have a section devoted to ESG, providing their take on a range of environmental, social, and governance topics including green energy and women on boards. Every mutual fund company has an ESG product, and every investment bank is rolling out ESG research.

Europe is the place to be if you want to do good while becoming richer.

So what’s driving Europe’s responsible investing revolution? One group at the heart of it is the region’s pension industry. Funds aren’t only shunning tobacco or weapon stocks; they’re also integrating ESG standards into the investment processes. Indeed, the most progressive funds seek to invest in companies that do good—a practice that some critics say edges dangerously close to philanthropy.

Europe had a $12 trillion of assets committed to sustainable and responsible strategies in 2016, the most among any region, according to the Global Sustainable Investment Alliance. What’s more, its 2016 total represented a 40 percent jump from 2012. And the region’s pension funds—with their massive assets, long-term horizons, and government backing—have been a major driver, Bloomberg Intelligence says.

It’s unsurprising that pension funds have such sway: The top 1,000 hold a total of €7.2 trillion ($8.2 trillion) in assets, IPE Research data show. “They have billions under management. As soon as they say something, all the asset managers listen,” says Cedric Durant des Aulnois, chief executive officer at Montanaro Asset Management Ltd. in London, who reckons his company’s ESG capabilities have helped it amass about €1 billion in mandates from pensions. “This is not a fad. It’s a structural change.”

There are a number of reasons for pension funds’ growing focus on ESG. One is regulatory. Starting in January, changes in the European Union’s so-called IORP II—the Institutions for Occupational Retirement Provision directive—compel plans to cover ESG in risk management. New U.K. laws will require pension trustees starting in October to show how they account for ESG in their financially material considerations. There’s also the sense that pension beneficiaries increasingly expect their trustees to help combat climate change or recycle waste.

The worry that adopting ESG will compromise returns has also dissipated somewhat. That is to say, many asset managers see it as risk mitigation. Investing in clean energy contributes—however marginally—to reducing the risks of climate change. For that matter, a company with better governance might be less prone to a management scandal. One with better labor practices might have lower staff turnover.

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