Boston - Interest in environmental, social and governance (ESG) investing has reached a new threshold across U.S. money manager, institutional and retail spaces, according to the US SIF's biennial "Report on U.S. Sustainable, Responsible, and Impact Investing Trends" released last month. As investors steer more dollars and advocacy toward resolving issues like climate change, human rights and transparency, financial advisors and plan sponsors are noting these key trends.
U.S. assets directed to sustainable, responsible and impact strategies climbed to $12 trillion in 2018, a 38% increase from $8.7 trillion in 2016, according to the report. This represents one in four dollars, or 26%, of the $46.6 trillion under professional management in the U.S.1
The report also noted that 165 institutional investors and 54 money managers, controlling $1.8 trillion in assets, filed or cofiled shareholder resolutions on ESG issues.
Among money managers, as defined in the report, client demand was the top motivation for pursuing ESG incorporation, while institutional investors cited "fulfilling mission" and "pursuing social benefit." For both, adhering to the UN Sustainable Development Goals (UN SDGs) was another main reason for their ESG focus.
Key reasons money managers cited for incorporating ESG factors:
- Client demand (82%)
- Mission (81%)
- Social benefit (79%)
- Returns (76%)
- Risk (75%)
- Fiduciary duty (58%)
- UN SDGs (40%)
- Regulatory compliance (22%)
Conflict risk tops institutional investor concern
Alongside money managers, US SIF directly surveyed 496 institutional investors with $5.61 trillion of ESG assets under management. This group includes public funds, insurance companies, philanthropic foundations, labor funds, health care providers, faith-based institutions and other nonprofits. Public funds held the largest share of institutional assets, at more than $3.0 trillion.
As has been the case since 2010, avoiding investment in countries exhibiting conflict risk, primarily Sudan and Iran, was the leading concern for institutional investors and commanded almost $3 trillion in ESG-directed assets. Tobacco and climate change/carbon emissions were other top areas of concern.
Advocacy on the rise
From 2016 through the first half of 2018, proxy access was the leading shareholder issue, according to the US SIF report. More than 350 proposals were filed at U.S. companies regarding shareholders' ability to nominate directors to corporate boards. Corporate political activity was the second top area of shareholder focus, with 295 proposals filed. The targets of many of these proposals were companies that deny climate change science and lobby against the regulation of greenhouse gas emissions.
ESG investing, shareholder advocacy and the UN SDGs are capturing growing investor attention - and dollars. Financial advisors and plan sponsors are noting this pivotal trend.
Bottom line: Over the past decade, ESG investing has rapidly gained ground with money manager, institutional and retail investors. Calvert seeks to provide investors access to the full spectrum of the capital markets, offering 27 responsible investment strategies.
1 US SIF Foundation, "Report on U.S. Sustainable, Responsible and Impact Investing Trends," 2018. Data is as of December 31, 2017. If data were unavailable as of that date, then publicly available data throughout the first quarter of 2018 was used.
© Eaton Vance
© Eaton Vance
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