Sustainable, responsible and impact investing — an investment approach that focuses on long-term growth and the generation of positive social and environmental impacts — has arrived at a new threshold. Compared with a decade ago, sustainable and responsible investors today encompass a much wider array of managers and institutions that are seeking to manage risk and find opportunities in a complex, globalized marketplace.
According to a 2014 US SIF Foundation report, the most recent survey data available, assets managed in the U.S. with strategies that consider environmental, social or corporate governance issues in investment analysis or shareholder engagement grew 76% to $6.57 trillion from 2012, attaining a market share of $1 of every $6 under professional management. ESG assets held by institutional asset owners alone rose 60% to more than $4 trillion.
Asset owners now have access to a broader range of professionals, as well as research and data providers with expertise in SRI.
Professional investment managers are offering new investment products that consider ESG themes. Morningstar Inc. and MSCI have started rating funds on the ESG records, where known, of the companies in the fund portfolios. Additionally, in 2015, the Department of Labor issued new guidance that makes clear fiduciaries can consider ESG issues in investment analysis for retirement plans.
The growth in interest in sustainable investing, as well as the growth in assets deployed using these strategies, has also catalyzed interest in ensuring that sustainable and impact investing strategies are being carried out in a meaningful way. In other words, are the asset managers that have entered the field in recent years “walking” their talk? How can fiduciaries, especially those new to SRI, evaluate investment products and strategies?
As an investor, these areas deserve your attention.
When looking for money managers, be sure that those considering ESG issues in investment analysis disclose the specific criteria they consider. Transparency and accountability are critical components of responsible investment, but too many fund managers provide little detail beyond assurances that they consider environmental, social and governance issues. In a 2015 study of 16 of the largest money managers practicing “ESG integration,” the US SIF Foundation found that half did not fully specify ESG criteria they consider for holdings that collectively totaled at least $778 billion.
Examine whether managers of public equity products that consider ESG factors in selecting companies for their portfolios are thoughtfully voting their shares in those companies. A number of major mutual funds that consider ESG issues routinely abstain from or vote against shareholder proposals that urge companies to reduce their greenhouse gas emissions, disclose their political spending or make other improvements to their policies. Fiduciaries and others holding these products should let their managers know that always abstaining or always voting with management is not acceptable.
Practitioners of sustainable and responsible investment can also engage with legislators and regulators. Legislators and regulators need to hear from fiduciaries about the policy changes that will encourage responsible corporate behavior, innovation and sustainable economic growth. A short list of sustainable investors' policy priorities includes the full enforcement of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and implementing rules to curb greenhouse gas emissions such as the Clean Power Plan.
