Sustainable, responsible and impact investing—investing for long-term competitive financial returns and positive social impact—is advancing in the United States, according to the US SIF Foundation’s latest Report on US Sustainable, Responsible and Impact Investing Trends.
Every two years since 1995, the US SIF Foundation has measured the size and scope of the sustainable, responsible and impact investing (SRI) field through a major survey of US money managers and institutional asset owners.
From 2001 through 2012, our surveys showed that assets managed according to SRI strategies essentially kept pace with the overall market of professionally managed assets in the United States, accounting for a fairly consistent 10-12 percent share of the whole.
Significant Findings in 2014 Report
In 2014, however, sustainable investing took a significant leap forward. The 2014 edition of the Report, released in November, documented:
- $6.20 trillion in US-domiciled assets as of January 1, 2014, held by 480 institutional investors, 308 money managers and 880 community investment institutions that apply environmental, social and governance (ESG) criteria in their investment analysis and portfolio selection, and
- $1.72 trillion in US-domiciled assets at the start of 2014 held by 202 institutional investors or money managers that filed shareholder resolutions on ESG issues from 2012 through 2014.
After eliminating double-counting for assets involved in both strategies (or held by money managers on behalf of institutional investors), the overall total of SRI assets was $6.57 trillion—a 76-percent increase over the $3.74 trillion identified in sustainable investing strategies at the outset of 2012.
As a result, nearly 18 percent of all investment assets under professional management in the United States today are held by institutions or money managers that consider ESG issues in selecting investments across a range of asset classes, or file shareholder resolutions on ESG issues at publicly traded companies.
This growth is largely driven by demand from a range of actors from individuals who invest in mutual funds that seek companies with good labor and environmental practices to public pension plans that have encouraged companies in which they invest to reduce their greenhouse gas emissions and to factor climate change into their strategic planning.
Indeed, of the 119 money managers who responded to a survey question on why they offer ESG or SRI products, the top factor—cited by 80 percent—is client demand. More than 70 percent of the money managers responding to this question also said they considered ESG factors in order to fulfill their mission (or their clients’), to improve returns and to manage risk.
Assets to which institutional owners apply ESG criteria now
total $4.04 trillion, up 77 percent since the start of 2012
Since 2012, numerous money managers have introduced funds that consider various ESG factors or begun incorporating ESG criteria in existing products. From 2012 to 2014, for example:
- the assets managed by money managers that consider environmental criteria in portfolio selection grew from $240 billion to $2.9 trillion—a more than tenfold increase,
- the number of mutual funds considering one or more ESG factors grew from 333 with $641 in assets, to 456 with $1.92 trillion in assets,
- the assets of mutual funds considering human rights issues grew from $32 billion to nearly $364 billion,
- the assets of mutual funds considering labor issues expanded from $37 billion to $340 billion, and
- the mutual funds and other investment vehicles that consider climate change issues grew from 280 with $134 billion in assets, to 325 vehicles with $276 billion in assets.
Institutional Asset Owners Emphasize ESG
Reinforcing the money managers’ nod to client demand, the US SIF Foundation found increased emphasis on ESG factors by institutional asset owners such as public pension funds, foundations, educational endowments and religious institutions. The assets to which institutional owners apply ESG criteria now total $4.04 trillion, up 77 percent since the start of 2012. Many of these institutions—with assets collectively totaling more than $2.6 trillion–avoid investments in companies that do business in Sudan or other terrorist or repressive regimes. Many, too, restrict investments in tobacco-related companies or scrutinize portfolio companies on such factors as executive pay, fair employment and climate change.
In addition, from 2012 through 2014, more than 200 money managers and institutional investors, representing $1.7 trillion in assets, filed hundreds of resolutions at portfolio companies on a range of environmental, social and governance issues. Through these efforts, investors have persuaded hundreds of companies to exercise better oversight of their political spending and lobbying, to disclose and reduce their greenhouse gas emissions and strengthen their fair employment policies.
In sum, through their investment policies and actions, US investors increasingly are spelling out the issues that matter to them in assessing corporate responsibility.
About the Author: Meg Voorhes is Director of Research and Operations for US SIF. Before joining US SIF in 2008, Meg directed environmental, social and governance research for RiskMetrics Group’s Financial Research and Analysis division. She spent much of her career at the Investor Responsibility Research Center where she directed research for institutional investors and corporate clientele on environmental, human rights and other social issues raised by shareholders at U.S. companies and specialized in issues related to multinational investment and corporate responsibility in South Africa.
She is the author or co-author of several US SIF Foundation publications, including its biennial Report on Sustainable and Responsible Investing Trends in the United States.
For more information on US SIF Foundation: http://www.ussif.org/