Investments in sustainable strategies are growing rapidly in the U.S. as more investors look to drive investment returns and social good at the same time, and money managers design new products to meet demand.
Assets under management in U.S. mutual funds and exchange-traded funds using an environmental, social and governance-only approach reached $200 billion at the end of February, up 5.8% from Dec. 31 and up 17% from year-end 2015, Morningstar Inc. data show. The data do not include institutional separate accounts or ESG assets managed internally by U.S. pension plans.
But the growth in ESG investing, which long has had a foothold in Europe, goes beyond ESG-only strategies:
- Money managers in the U.S. increasingly are applying an ESG lens across investment strategies and asset classes.
- New ESG products are being provided to U.S. investors, including first-in-the-market offerings such as ESG-oriented target-date funds.
- Large U.S. institutional investors increasingly are asking their external managers to show how they are using ESG factors in their investment processes.
In the 14 months ended Feb. 28, more than 40 U.S. money managers agreed to follow the guidelines promoted by the United Nations-backed Principles for Responsible Investment, which urges integration of ESG policies firmwide.
Among recent signatories are Fidelity Investments and Brandywine Global Investment Management LLC. PRI now lists 244 U.S. money managers among its more than 1,700 followers, a more than 20% increase since the end of 2015.
Fidelity Investments, Boston, recently opened an ESG unit in its asset management division “to support the integration of ESG considerations into our investment process,” said spokeswoman Nicole Goodnow in an e-mail. While Fidelity's investment process had always been consistent with PRI principles, Ms. Goodnow wrote, “as we continue to focus on enhancing our consideration of ESG factors, we felt now was the right time to formalize our commitment and become a PRI signatory.” Fidelity, with $2.2 trillion under management, signed the principles on Feb. 23.