ESG has moved to the mainstream of institutional investing from the fringes.
Investment strategies that incorporate environmental, social and governance criteria have been thriving despite the recession, gaining momentum globally in the past several years as investors put a higher premium on extra-financial risks.
“Interest (for ESG) might have been delayed a little through the financial crisis, but it definitely didn't wane and is now on the increase,” said Craig Metrick, U.S. head of responsible investment at Mercer LLC based in New York.
In the U.S., sustainable and socially responsible investing assets — broadly defined as investments that integrate ESG factors, involve the filing of shareholder resolutions or have a mission of community investing — grew 13.3% to $3.07 trillion in the three years ended Dec. 31, 2009, according to the latest figures available from the Social Investment Forum Foundation.
Recent data show even more spectacular growth in Europe, with such assets growing 85% to €5 trillion ($6.5 trillion) from €2.7 trillion in the two years ended Dec. 31, 2009, according to the European Sustainable Investment Forum. Asia lags in comparison, with about $20 billion in sustainable assets, according to a 2010 study conducted by Vontobel Holding AG. However, Asia's sustainable assets are set to grow to about $4 trillion by 2015, according to Vontobel.
“Investors no longer think that there's a trade-off between responsible investing and performance. This is a powerful idea that's taking hold around the world,” said Colin Melvin, CEO of London-based Hermes Equity Ownership Services Ltd., which advises clients on ESG investing with aggregate assets of about £60 billion ($95 billion) globally. EOS is a division of Hermes Fund Managers Ltd., the asset manager owned by the £33.9 billion BT Pension Scheme.
But the shift toward returns and away from the traditional value-based ethical investing has been a cause for concern of some managers.
“I worry that by pushing the performance argument, we're losing the impact argument, which is also very important,” said Paul Hilton, director of sustainable investment business strategy at Calvert Investments, Bethesda, Md. “It is possible to achieve both, but both have to happen simultaneously for (ESG investing) to be meaningful.”