Capital Group, Janus Capital Management, MFS Investment Management and other mainstream money management firms integrate ESG factors into their investment process almost as much or even more so than exclusive socially responsible investment firms such as Calvert Investments, said “Unlocking ESG Integration,” a report released Tuesday from US SIF Foundation.
Incorporation of environmental, social and environmental factors into the investment process by U.S. money managers has grown to $4.8 trillion as of the end of 2014, up from $1.4 trillion at the end of 2012, the report shows.
The focus of the report was examining 16 money managers and included the extent each firm discloses specifics on how they apply ESG factors into their investment process, such as providing details on ESG criteria they use.
Capital Group, Generation Investment Management, Janus, MFS, Miller/Howard Investments, Parnassus Investments, Pax World Management, Pictet Asset Management, Principal Global Investors, TIAA-CREF, and Wellington Management all reported 100% of their equity strategies integrate ESG in their investment process.
As defined by the report, integration is the systematic and explicit inclusion of ESG into traditional financial analysis.
The firms, except Generation, take the ESG integration a step further, also using screening, defined as the exclusion or inclusion of companies from portfolios based on specific ESG screens.
In addition to integration, Capital Group also screens 50% of equity strategies; MFS, 18%; Miller/Howard, 61%; Parnassus, 100%; Pax, 100%; Pictet, 100%, Principal 2%, TIAA-CREF, 100%; and Wellington, 2%. Generation applies no screen.
In addition, Capital Group, F&C Asset Management, MFS, Parnassus, Pax, Principal and Wellington integrate ESG into100% of their fixed-income strategies.
Among other firms, Calvert integrates and screens 67% of equities and 100% of fixed income; F&C Asset Management integrates 75.8% of equity strategies, including applying screens to 10.5% of equity strategies and 100% of fixed income. In addition, Miller/Howard Investments integrates 39% of equities.
In terms of disclosure of ESG application, Capital Group, F&C, Janus, MFS, Pictet and Principal don’t disclose ESG criteria.
“ESG holds the potential to be a pretty comprehensive way to practice sustainable investing,” Meg Voorhes, US SIF director of research and co-author of the report, said in an interview. ”It’s becoming a leading strategy in terms of assets committed to it.”
“We find it encouraging more asset managers are practicing ESG integration,” Ms. Voorhes said in the interview. “But the next stage for money managers profiled in the study and (those) beyond the study is to provide more disclosure around practices, specifically ESG criteria they consider and how they systematically apply integration” to allow institutional investors to better evaluate the use.