According to the US SIF Foundation’s newly released biennial Report on US Sustainable, Responsible and Impact Investing Trends 2018, one in every four dollars under professional management in the United States is managed with consideration of environmental, social and corporate governance (ESG) factors, up from one in five dollars in 2016.
That’s 12 trillion dollars in total assets now managed according to these strategies – a 38 percent increase in just two years. Since 1995, when the US SIF Foundation first measured US SRI assets at $639 billion, assets have increased 18-fold, a compound annual growth rate of 13.6 percent. The Report paints a picture of a practice that is growing, vibrant and multifaceted.
According to the Trends Report, the most widely used approach, reported by 365 investment management firms and more than 1,000 community-oriented financial institutions and investment vehicles, is the incorporation of ESG criteria into investment analysis and portfolio selection. Of the $11.6 trillion in assets identified by money managers as incorporating one or more ESG criteria, $8.6 trillion was managed on behalf of institutional investors and $3 trillion on behalf of individuals.
In addition, investors representing $1.8 trillion in assets also file shareholder resolutions on ESG issues. Since many investors engage in both strategies, the net assets engaged in either ESG incorporation or filing shareholder resolutions totals $12 trillion.
ESG incorporation: The money managers that practice ESG incorporation represent a wide range of asset classes and investment vehicles. They include:
• 730 mutual funds, ETFs and other registered companies with $2.6 trillion in assets, up from 519 such funds with $1.7 trillion in assets in 2016,
• 780 venture capital, private equity, real estate and hedge funds with $588 billion in assets, up from 413 such alternative funds with $206 billion in assets in 2016,
• 203 other commingled funds with $753 billion in assets, and
• 159 money management firms that report they consider ESG criteria across $7.5 trillion in assets, albeit without specifying the types or numbers of funds and vehicles involved.
In addition, the US SIF Foundation tracks more than 1,000 community development banks, credit unions, loan funds and venture capital funds that focus on investments in and services to lower and middle-income communities of the United States, and several dozen US-domiciled microfinance and other loan funds that invest in poorer communities overseas. The assets of these community investing institutions and funds have grown more than 50 percent since 2016 and now stand at $185 billion.
Climate change is the leading ESG issue money managers address, considered across $3 trillion in assets, a 110 percent increase since 2016.In the absence of federal policy to curb greenhouse gas emissions, investors are increasingly stepping up. A growing number of money managers’ institutional clients—particularly philanthropic foundations, educational endowments and healthcare institutions—are establishing fossil fuel divestment policies. The 2018 Trends Report tracked a 372 percent increase in the institutional assets subject to fossil fuel divestment policies since 2016; they now total $680 billion.
US money managers also apply investment restrictions relating to tobacco companies across $2.9 trillion in assets; restrictions relating to gun and weapons manufacturers now apply across $1.9 trillion in assets, a quintupling since 2016—another way that investors are showing their frustration with public policy. Other important ESG criteria for money managers—affecting more than $2 trillion in assets—are how portfolio companies address human rights concerns and guard against corrupt practices.
Shareholder resolutions: Shareholder engagement also continues to enjoy strong support and to achieve notable successes. From 2016 through the first half of 2018, 165 institutional investors and 54 investment managers led or co- led shareholder resolutions on ESG issues. In total, investors filed more than 700 resolutions relating to environmental, social and key governance issues for the 2018 proxy season.
For example, investors filed 353 proposals at US companies from 2016 through 2018 to facilitate shareholders’ ability to nominate directors to corporate boards and have access to the companies’ proxy statements to inform other investors about these nominees. As a result of the strong investor support for these proposals, the share of S&P 500 companies with proxy access policies grew from 1 percent in 2013 to 65 percent in 2017.
In addition, the proportion of shareholder proposals on social and environmental issues that receive high levels of support has been trending upward. During the proxy seasons of 2012 through 2015, only three shareholder proposals opposed by management on environmental and social issues crested 50 percent support, in contrast to the 18 proposals that did so in 2016 through mid-2018, including proposals at Exxon and Occidental Petroleum asking them to report on climate risk and their business strategies.
Looking ahead, we anticipate that an expanding menu of investment products, enhanced rating systems and ESG data, a new US sustainable investment designation for advisors (offered by CFFP in partnership with US SIF) and growth in sustainable investment options in retirement plans will drive further growth in sustainable and impact investing.
Lisa Woll is CEO of US SIF and the US SIF Foundation.