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Analysis: Latest developments point to ESG getting to scale in the US

Momentum behind long-termism and ESG continues to build

Last October, RI ran an analysis piece wondering if the US had ‘turned a corner’ on environmental, social and governance (ESG) investing.

We cited new guidance from the Department of Labor on economically targeted investments, warm words from the likes of Legg Mason, BlackRock and the Pension Consulting Alliance.

Well, three months on and that momentum shows no sign of diminishing, if the latest series of announcements is anything to go by.

Investment bank JP Morgan has launched a new sustainable investments platform offering tailored ESG products in collaboration with index provider S&P and the World Bank. JP Morgan Ethos Investments aims to give investors exposure to assets with ESG credentials across equity, credit and fixed income. Investors can choose passive or active strategies.

It follows rival Goldman Sachs Asset Management saying it would use ESG analysis to help it integrate environmental factors into its proxy voting policies. Morgan Stanley has had a dedicated arm to sustainable investment since 2013.

JP Morgan’s global head of equities, Tim Throsby said: “We have seen first-hand the rapid rise in demand for ESG based products, as clients realize that the returns can be just as rewarding as with traditional products.”

He said the firm expects it to “open up a whole new investment base for companies that demonstrate strong ESG credentials, and bring opportunities for investors”. The platform will also include green bonds and social bonds issued by highly rated supranational corporate entities on which JP Morgan will team up with World Bank.

S&P, of course, has teamed up to create the S&P Long-Term Value Creation (LTVC) index with the Canada Pension Plan Investment Board (CPPIB) and asset manager RobecoSAM.The new offering comprises about 250 companies that take a long-term view and have a sustained history of financial quality. Today’s report in the Financial Times that some of the largest US asset managers have held what it terms “secret summit meetings” to develop proposals for improving the governance of listed companies to boost long-term investment and “reduce friction with shareholders” is another promising signal.

The FT said discussions have focused on the role of directors, executive pay, board tenure and shareholder rights, which the paper noted have all been “flashpoints” at AGMs. Mark Wiseman, President and CEO of CPPIB (them again!) – prime mover in the ‘Focusing Capital on the Long Term’ project with Deloitte – was also said to be involved.

Elsewhere in the past few days you have had Paul Krugman, Professor of Economics and International Affairs at Princeton University, saying that climate change is “by far the most important policy issue facing America and the world”. He’s putting his weight behind the “remarkable technological progress in renewable energy” and financial incentives.

And Jeffrey Sachs, Professor of Sustainable Development at Columbia’s School of International and Public Affairs has highlighted a “new massive open online course (MOOC)” looking at the extractive sector “in all its complexity: economics, law, social inclusion, environmental sustainability, and yes, geopolitics”. He reckons that the extractive industries, if properly managed, “can be a positive force for sustainable development, rather than a source of instability and inequality.”

Put it all together and you perhaps you are starting to see an ESG sector, at scale. That’s something we should all welcome.

With reporting by Vibeka Mair.