Last month the US SIF Foundation, the not-for profit body of the US SIF: The Forum for Sustainable and Responsible Investment, published a report showing how the responsible investment industry has grown from an unknown, ultra-specialist practice into a sector worth $6.57tn, with one of every six dollars currently under professional management either invested or engaged with according to ESG factors.
The report tracks how the past 25 years of development in ESG investing in the US have brought the market to this figure, which has increased by 76% since the US SIF last valued the industry in 2012. It makes a case for such investors impacting capital markets in a profound way by increasing the prevalence of SRI issues and products, improving companies through engagement, aiding communities through social investing and steering public policy to promote long-term investment.
Lisa Woll, CEO of the US SIF and the Foundation, says that though there has been recent acceleration towards widespread acceptance of SRI in the wider capital markets, there are still a few barriers to the practice being adopted wholesale. Among these is the need for investors to be able to measure the impact of their responsible investments, she notes, as well becoming more rigorous and concerned with best practice.
Woll continued: “There are increasing concerns about the degree to which SRI practice has been taken on in a meaningful way. It’s a mixed bag in terms of what firms mean by ‘ESG integration’, for example, and how it’s being obtained or integrated. Although the field is having increased exposure, one of our aims is to answer the question of how to let practitioners become better practitioners.”
Among the many examples of how far the industry has come, the report suggests that recent ESG research product launches by MSCI and Morningstar mark a watershed moment, with both services readily accessible to retail investors where they have not been previously.
Woll also noted that a number of other institutions have reflected this growing interest, whether they areinvestors who are turning to ESG and impact investing – such as family offices or foundations – or regulators beginning to take action, such as reforms in the US that allow worker pension funds to properly consider ESG factors in their investment decisions.
The presence of more “field-building institutions” like the Principles for Responsible Investment, SIFs around the world and other foundation-related organizations is another clear indicator of progress. Woll added: “Another way to see how big the field has become is to look at how many for-profit conference providers are working in it!”
The public, too, have become more engaged by the worldwide campaign to divest from fossil fuels, though not necessarily prompted to remove their investments. “I think it’s actually galvanised folks not just to divest but to think about the content of their portfolios. At least anecdotally it’s prompted a fairly boisterous conversation around divestment and has opened some investors’ eyes, from retail to high net worth, to looking at their investments through an ESG prism.”
The report describes the outcomes of such campaigns as tangible markers of progress, whether its US food companies agreeing to source palm oil responsible, fossil fuel companies being pressured into reporting on climate change risk or how 1.2 million investors and their representatives encouraging the US Securities and Exchange Commission (SEC) to require listed companies to report on their political spending in 2011.
Next on the US SIF’s agenda is to investigate sustainable investing trends in different markets, starting with a report on the US slated for publication in November and international studies to follow shortly, informed by reports from regional actors and culminating in a global study by the Global Sustainable Investment Alliance (of which US SIF is Secretariat) in 2017.
Woll – who has been CEO since 2006 – is enthusiastic for the progress still to come: “In a few months I’ll have been at the US SIF for a decade. The field has changed so much already since then and is one of the reasons I feel that I’ve actually had several different jobs in that time”.