by Hank Boerner – Chairman & Chief Strategist, G&A Institute
We have an important update for you today: The US SIF Report on “US Sustainable, Responsible and Impact Investing Trends, 2016,” was released this week.
The top line for you today: In the U.S.A., sustainable, responsible and impact (SRI) investing continues to expand — at a rapid and encouraging pace.
As we read the results of 2016 survey report, we kept thinking about the past 30 or so years of what we first knew as “socially responsible,” “faith-based,” “ethical” (and so on) approaches to investing, and that more recently we declared to be sustainable & responsible investing (SRI). And even more recently, adding “Impact Investing”).
At various times over the years we tried to visualize “how” the future would be in practical terms when many more mainstream investors embraced SRI / ESG approaches in their stock analysis and portfolio decision-making.
We’re happy to report that great progress continues to be made. It may at times have seemed to be slow progress for some of our SRI colleagues, especially the hardy pioneers at Domini, Trillium, Calvert, Zevin, Walden, Christian Brothers/CBIS, As You Sow, Neuberger Berman, and other institutions. But looking over the past three decades, always, in both “up and down” markets, and especially after the 2008 market crash — sustainable, responsible and impact investment gained ground!
And so, we in the U.S. SRI community anxiously look forward to the every-other-year survey of U.S.A. asset owners and managers to measure the breadth and depth of the pool of assets that are managed following ESG methods, SRI approaches, etc.
Here are the key takeaways for you in the just-released survey by the U.S. Forum for Sustainable & Responsible Investment (US SIF), the trade association of the SRI community that has tracked SRI in its survey efforts since 1995-1996, and the US SIF Foundation.
2016 Survey Highlights:
• At the start of 2016, ESG (“environmental/social/governance”) factors were being considered for US$8.72 trillion of professionally-managed assets in the United States of America.
• SRI Market size: that is 20 percent / or $1-in-$5 of all Assets Under Management (AUM) / for all US-domiciled assets under professional management (that is almost $9 Trillion of the total AUM of $40.3 trillion).
• This is a gain of 33% over the total number ($6.572 trillion in AUM) in the previous US SIF survey results at the start of 2014.
• Surveyed for the 2016 report: a total of 447 institutional investors, 300 money (asset) managers, and 1,043 community investment institutions. This can be described as a diverse group of investors seeking to achieve positive impacts through corporate engagement -or- investing with an emphasis on community, sustainability or advancement of women.
• Drivers: Client demand is a major driver – the U.S. asset owners hiring asset (money) management firms are increasingly focused on ESG factors for their investments — as responsible fiduciaries.
• ESG Criteria: Survey respondents in the investment community had 32 criteria to select from in the survey, including E-S-G and product related activities (ESG funds); they could add ESG criteria used as well.
What is important to the investors surveyed? The report authors cited responses such as:
• Environmental investment factors — now apply to $7.79 trillion in AUM.
• Climate Change criteria – now shape $1.42 trillion in AUM – 5 times the prior survey number.
• Clean Technology is a consideration for managers of $354 billion in AUM.
• Social Criteria are applied to $7.78 trillion in AUM.
• Governance issues apply to $7.70 trillion in AUM, 2X the prior survey.
• Product specific criteria apply to $1.97 trillion in AUM.
The Social criteria (the “S” in ESG) include conflict risk; equal employment opportunity and diversity; labor and human rights issues.
Product issues include tobacco and alcohol; these were the typically “screened out” stocks in the earlier days of SRI and remain issues for some investors today.
Among the investment vehicles incorporating ESG factors into investment management, the survey found 519 registered investment companies (mutual funds, variable annuity funds, ETFs, closed-end funds). Total: $1.74 trillion in AUM.
Alternative Investment Vehicles:
There were 413 alternate investment vehicles identified as using ESG strategies (including private equity, hedge funds, VCs). Total: $206 billion in AUM.
The biggie in SRI, with $4.72 trillion in AUM, a 17% increase since the start of 2014 (the last survey). These owners include public employee funds; corporations; educational institutions; faith-based investors; healthcare funds; labor union pension funds; not-for-profits; and family offices.
The survey included results from 1,043 community investing institutions, including credit unions; community development banks; loan funds; VC funds. Total: $122 billion in AUM. (These institutions typically serve low-to-moderate income individuals and communities and include CDFI’s.)
SRI players are active on the corporate proxy front: From 2014 to 2016, 176 institutional investors and 49 money managers file / co-file shareholder resolutions at U.S. public companies focused on environmental (E) or social (S) issues. (The number remains stable over the past four years, the report tells us.) The major development was that where such resolutions received 17% approval from 2007 to 2009, since 2013, 30% of resolutions received 30% or more approval.
There are five primary ESG incorporation strategies cited by US SIF: (1) Analyzing, selecting best-in-class companies, positive choices for the portfolio; (2) negative approaches / exclusionary approaches for certain sectors or industries or products by/for the fiduciary; (3) methods of ESG integration — considering various ESG risks and opportunities; (4) impact or “outcome” investing, intended to generate social (“S) or environmental (“E”) impact along with financial return; (5) selecting sustainability-themed funds of various types.
Commenting on the survey results, US SIF CEO Lisa Woll observed that as the field grows, some growing pains are to be expected. . .with the continuing concern that too often, limited information is disclosed by survey respondents regarding their ESG assets. While the number of owners and managers say that they are using ESG factors, they do not disclose the specific criteria used. (This could be, say, criteria for clean energy consideration, or labor issues of various kinds.)
The US SIF biannual survey effort began in 1996, looking at year-end 1995 SRI assets under management. In that first year, $639 billion in AUM were identified. By the 2010 report, the $3 billion AUM mark was reached. That sum was doubled by the 2014 report.
Year-upon-year, for us the message was clear in the periodic survey results: The center (the pioneering asset owner and management firms) held fast and key players built on their strong foundations; the pioneers were joined by SRI peers and mainstream capital market players on a steady basis (and so the SRI AUM number steadily grew); and investors — individuals, and institutions — saw the value in adopting SRI approaches.
Today, $1-in-$5 in Assets Under [Professional] Management sends a very strong signal of where the capital markets are headed — with or without public sector “enthusiasm” for the journey ahead in 2017 and beyond!
There is a treasury of information for you in the report, which is available at: www.ussif.org.
Congratulations to the US SIF team for their year-long effort in charting the course of SRI in 2015-2016: CEO Lisa Woll; Project Directors Meg Voorhes of the US SIF Foundation and Joshua Humphreys of Croatan Institute; Research Team members Farzana Hoque of the Foundation and Croatan Institute staff Ophir Bruck, Christi Electris, Kristin Lang, and Andreea Rodinciuc.
2016 survey sponsors included: Wallace Global Fund; Bloomberg LP; JP Morgan Chase & Co.; Calvert Investments; TIAA Global Asset Management; Candriam Investors Group; KKR; MacArthur Foundation; Neuberger Berman; Saturna Capital (and Amana Mutual Funds Trust); Bank of America; BlackRock; CBIS (Catholic Responsible Investing); Community Capital Management Inc.; ImpactUs; Legg Mason Global Asset Management / ClearBridge Investments; Morgan Stanley Institute for Sustainable Investing; Sentinel Investments; Trillium Asset Management; Cerulli Associates; and, Walden Asset Management.
A footnote on terminology: Throughout the survey exercise and reporting, terms used include sustainable, responsible and impact investing; sustainable investing; responsible investing; impact investing; and SRI. These are used interchangeably to describe investment practices.
About US SIF: This is a three-decade old, Washington-DC-based membership association that advances SRI to ensure that capital markets can drive ESG practices. The mission is to work to rapidly shift investment practices toward sustainability, focusing on long-term investment and the generation of positive social and environmental impacts. SIF Members are investment management and advisory firms; mutual fund companies; research firms; financial planners and advisors; broker-dealers; non-profit associations; pension funds; foundations; community investment institutions; and other asset owners.
Governance & Accountability Institute is a long-time member organization of the U.S. Forum for Sustainable and Responsible Investment (US SIF).
As part of the G&A Institute mission, we are committed to assisting more investing and financial professionals learn more about SRI and ESG — especially younger professionals interested in adopting SRI approaches in their work. G&A is collaborating with Global Change Advisors to present a one-day certification program hosted at Baruch College/CUNY on December 14, 2016. Details and registration information is at: https://www.eventbrite.com/e/intro-to-corporate-esg-for-investment-finance-professionals-certification-tickets-29052781652