As most advisors know, U.S.
sustainable investing has grown dramatically, up 38% since 2016 in the U.S. to
make up 26% of the $46.6 trillion in U.S. assets under management, according to
the Forum for Sustainable and Responsible Investment’s 2018 report
on Sustainable, Responsible and Impact Investing Trends. Since 1995, when US
SIF first started keeping tabs, socially responsible assets have had a 13.6%
compounded annual growth rate.
George H. Walker, chairman and CEO
of Neuberger Berman, set the tone of a discussion of the study findings,
stating his own firm “believes these [environmental, social and governance]
factors matter with return and risk, and makes better portfolio managers,” he
said. Half of Neuberger portfolios will be ESG-linked by the end of 2018, he
said, and that number is on track to hit 75% by the end of 2019.
Likewise, Meg Voorhes, director of
research at US SIF, noted that with 26% of assets in ESG investments, “it’s not
a niche area anymore.”
Primarily quantitative and
behavioral, the study identified 365 money managers and 1,145 community
investing institutions (i.e. banks and credit unions) that incorporate ESG
criteria into investment analysis. Institutional investors manage the bulk of
SRI assets, with $8.6 trillion managed professionally. Just $3 trillion is
managed for individual or retail investors. In additions, US SIF gathered data
from 496 institutional investors who managed $5.6 trillion.
According to the study, the top five
ESG criteria for money managers
- Climate Change/Carbon ($3 trillion)
- Tobacco ($2.89 trillion)
- Conflict Risk (terrorist or regressive
regimes, $2.26 trillion)
- Human Rights ($2.22 trillion)
- Transparency and Anti-Corruption
Of these, negative screen of tobacco
has seen the largest increase since 2016, 432%, while governance-related
transparency and corruption has grown by 206% in that time. Further, $1.9
trillion in assets had restrictions on weapons, a five-fold increase since
This importance of categories
changes slightly when focusing on institutional
investors’ key criteria, which were:
- Conflict risk ($2.97 trillion)
- Tobacco ($2.56 trillion)
- Climate Change ($2.24 trillion)
- Board Issues ($1.73 trillion)
- Executive pay ($1.69 trillion)
Also with institutional investors,
negative screening for tobacco grew the most with a 121% increase since 2016.
Shareholder and Client Demand
Shareholder issues, especially for
institutional investors, have grown by 39% on board members and 41% on
executive pay since 2016. The greatest number of shareholder proposals filed on
ESG issues regard:
- Proxy access
- Corporate political activity
- Climate change
- Labor & equal employment
- Executive pay
The largest group filing the most
shareholder proposals were faith-based (33.8%) organizations, money managers
(24.7%), foundations (13.2%), public (8.2%) and labor and other nonprofits
In the study, client demand was the
main reason for ESG investing. Eighty-two percent of the managers responding
said so, while following mission came in at 82%, social benefit at 79% and
returns at 76%.
The study had some other notable
- Due to strong investor support, the
share of S&P 500 companies with proxy access policies grew to 65% in 2017
from 1% in 2013,
- Several companies have agreed to
report on, and correct, gender pay differentials,
- Money managers today also are more
engaged: 88 money managers that have $9.1 trillion in AUM reported having
dialogues with companies today about policies, up from 61 managers with $6.2
trillion in 2016.
Jonathan Bailey, managing director
and head of ESG investing at Neuberger, noted that his firm has found strong
engagement through bond holdings, saying that if they see something a company
is doing that they don’t like, as a bond holder, they will step in with
comments. He says they’ve had hundreds of such engagements.
Vehicles and Investors
Most money was invested in
uncategorized money manager assets ($7.5 trillion), in which managers did not
identify ESG vehicles invested in. Josh Humphreys, president and senior fellow
with the Croatan Institute, said that showed “a huge opportunity for
The number of assets in ESG
incorporated mutual funds has jumped dramatically, to more than $2.5 trillion,
up from just over $1.5 trillion in 2016. Further, there are more than 600
funds, from just a handful in 2010. Only $7 billion is in ESG-related ETFs.
The types of institutional investors
incorporating ESG from 2010 to 2018 are largely public companies, followed by
insurance companies. Next are educational firms. A smaller share of the pie
includes faith-based organizations, foundations and other nonprofits.
Alternative funds, specifically
private equity and venture capital funds, are investing more in ESG, according
to the study, in which close to 400 funds now have ESG investments of close to
$300 billion. REIT investments also grew dramatically in the ESG area, with
about $200 billion invested.
Bailey said that the question
isn’t whether to engage in ESG investing, but how to do so. He did note that
companies can help investors by volunteering better financial information on
“Other regulators around the world
are moving toward making it a requirement, especially in Europe,” he said.
“Global companies should do the right thing and volunteer the information; we
think it’s in their best interest. But if it’s not happening, perhaps the
[Securities and Exchange Commission] should consider [stepping in].”
The study distributed online
information requests to money managers and institutional investors between
April and August. Information also was gathered from phone interviews and
email requests as well as annual reports, financial statements, SEC forms ADV
by money managers and other financial information.
The 144-page study was sponsored by
Wallace Global Fund, Nuveen, Calvert Investments, Candriam Investors Group, as
well as by various banks, foundations and firms, including Bank of America,
Bloomberg, MacArthur Foundation, Neuberger Berman, BlackRock and Domini Impact
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