Callan Associates, one of the leading investment consultants in the US, has conducted its first ever survey on environmental, social and governance (ESG) interest among US institutional investors.
The San Francisco-based firm, which advises clients with around $1trn (€739bn) in combined assets, conducted the poll in September 2013 to assess the status of responsible and sustainable investment strategies in the US institutional market. It had feedback from 129 respondents.
Callan said ESG strategies are evolving quickly – becoming differentiated from other responsible investment strategies, such as socially responsible investing (SRI).
While “early adopters” of responsible investment were often primarily focused on social goals over returns, Callan said, ESG strategies that have emerged in the past five years “look to maximize returns by identifying sources of long-term, sustainable earnings”.
Despite a slow start compared to Europe and elsewhere, Callan said the data suggests there’s a growing percentage of US investors and assets flowing into ESG.
According to the survey, around 20% of respondents have already incorporated ESG factors into their investment decision-making.But 53% of funds that have not incorporated ESG do not see a clear value, while 47% will not consider any factors that are not purely financial.
Callan said that the ESG proponents would need to communicate to US investors “an articulate, relatable description” of the value proposition, for example how it ties in with downside risk protection and the potential for better long-term returns. And they would also have to address how, if at all, the ESG factors they consider are related to financial outcomes, Callan said.
Another finding is that larger funds, those with $2bn or more in assets, tend to embrace ESG more than their smaller peers.
Callan noted: “The larger the fund, the more likely ESG adoption is present: funds with greater than $10 billion in assets were more than twice as likely to have incorporated ESG factors into investment decision making (46%) as the total respondent group.”
Respondents generally agreed with the statement “Engagement is more effective than divestment because you can influence governance.” But they disagreed that “ESG Investing is a short-term trend, and will disappear like other short-term investment trends.” The full results of the survey are available to Callan clients here.