Big News: US SIF Report on US Sustainable and Impact Investing Trends 2020 Released

Big News:   As 2020 Began, $1-in-$3 of Professionally Managed AUM in the United States Had ESG Analysis and/or Portfolio Management Strategies Applied…US$17.1 Trillion Total

November 2020 — Every two years, since 1996, the influential trade organization for sustainable, responsible and impact investment (US SIF) conducts a year-long survey of professional asset managers to determine the total of USA-based assets under management (“AUM”) that have ESG analysis and/or portfolio management applied.

The Trends report just released charts the AUM with ESG analysis and strategies in the United States at $16.6 trillion at the start of 2020 – that’s 25X the total since the first Trends report in1996, with compounded growth rate of 14 percent. (The most rapid growth rate has been since 2012, says US SIF.)

Consider: This means that today, $1-in-$3 of professionally managed assets in the United States follows analysis and/or strategies considering ESG criteria. (The total of US assets under professional management at the start of 2020 was $51.4 trillion.)

This is a dramatic 43% increase over the survey results of the 2018 Trends report – that effort charted a total of $11.6 trillion in ESG-managed AUM in the USA at the start of 2018.

The survey respondents for the current Trends report identified the ESG-focused AUM practices of 530 institutional investors; 384 money managers; 1,204 community investment institutions – all applying environmental, social, and corporate governance criteria in their portfolio management.

What are top ESG issues identified by money management professionals in the survey effort?

  • Climate Change-Carbon: $4.18 trillion – #1 issue
  • Anti-Corruption: $2.44T
  • Board Room Issues: $2.39T
  • Sustainable Natural Resources/Agriculture: $2.38T
  • Executive Compensation: $2.22T
  • Conflict Risk (such as repressive regimes or terrorism, this cited by institutional investors): $1.8T

Note that many strategies and ESG analysis and portfolio management approaches can be overlapping.

Lisa Woll, US SIF Foundation CEO explains: “Money managers and institutional investors are using ESG criteria and shareholder engagement to address a plethora of issues including climate change, sustainable natural resources and agriculture, labor, diversity, and political spending. Retail and high net worth individuals are increasingly using this investment approach, with $4.6 trillion in sustainable investment assets, a 50% increase since 2018.”

The 2020 Trends report counts two main strategies as “sustainable investing” – (1) the incorporation of ESG factors in analysis and management of assets and (2) filing shareholder resolutions focused on ESG issues.

What are the top issues for the professional asset owners, their managers, and other investment professionals participating in the survey? Gauging the leading ESG issues for 2018-to-2020, examining the number of shareholder proposals filed, the Trends report charts the following in order of importance:

  • Corporate Political Activity
  • Labor & Equal Employment Opportunity
  • Climate Change
  • Executive Pay
  • Independent Board Chair
  • Special Meetings
  • Written Consent
  • Human Rights
  • Board Diversity

Looking at the 2020 Trends report, we have to say — we’ve certainly come a long, long way over the years. When first Trends survey was conducted at the end of 1995, the total AUM was just US$639 billion. The shift to sustainable, responsible, impact investment was underway! (The report released on November 16th is the 13th in the series.)

For information about the US SIF Report on US Sustainable and Impact Investing Trends 2020, and to purchase a copy of the report: https://www.ussif.org/trends

Governance & Accountability Institute is a long-time member of the Forum for Sustainable and Responsible Investment (US SIF) and a sponsor of the 2020 Trends report. US SIF is the leading voice advancing sustainable and impact investing across all asset classes.

Members include investment management and advisory firms, mutual fund companies, asset owners, research firms, financial planners and advisors, community investment organizations, and not-for-profits. The work is supported by the US SIF Foundation that undertakes educational and research efforts to advance SIF’s work.

Louis Coppola, G&A EVP and Co-founder, is chair of the SIF Company Calls Committee that arranges meetings of SIF member organizations with publicly-traded companies to discuss their ESG/Sustainability efforts.

US SIF Trends 2020 Report Published November16, 2020:

Getting Serious About SASB: Company Boards, Execs and Their Investors Are Tuning In. What About Accounting Firms?

by Hank Boerner – Chair & Chief Strategist, G&A Institute

February 26, 2020

The importance of the work over the recent years of the Sustainable Accounting Standards Board in developing industry-specific ESG disclosure recommendations was underscored with the recent letters to company leadership from two of the world’s leading asset management firms.

Corporate boards and/or executive teams received two important letters in January that included strong advice about their (portfolio companies’) SASB disclosures. 

BlackRock CEO Larry Fink explained to corporate CEOs his annual letter:  “We are on the edge of a fundamental reshaping of finance. Important progress in improving disclosure has been made – many companies already do an exemplary job of integrating and reporting on sustainability but we need to achieve more widespread and standardized adoption.” 

While no framework is perfect, BlackRock believes that the SASB provides a clear set of standards for reporting sustainability information across a wide range of issues, from labor practices to data privacy to business ethics. 

In 2020, BlackRock is asking companies that the firm invests in on behalf of clients to publish a disclosure in line with industry-specific SASB guidelines by year end (and disclose a similar set of data in line with the TCFD’s recommendations). 

In a thought paper, BlackRock explained that disclosures intended for investors need to focus on financially material and business relevant metrics and include supporting narratives. The recommendations of the TCFD and the SASB (standards) are the benchmark frameworks for a company to disclose its approach to climate-related risks and the transition to a lower carbon economy.

Absent such robust disclosure, investors could assume that companies are not adequately managing their risk. Not the right message to send to current and prospective investors in the corporation, we would say.

State Street Sends Strong Signals

Separately, State Street Global Advisors (SSgA) CEO Cyrus Taraporevala in his 2020 letter to corporate board members explained:  “We believe that addressing material ESG issues is a good business practice and essential to a company’s long-term financial performance – a matter of value, not values.” 

The asset management firm [one of the world’s largest] uses its “R-Factor” (R=“responsibility”) to score the performance of a company’s business operations and governance as it relates to financially material and sector-specific ESG issues.

The CEO’s letter continued:  The ESG data is drawn from four leading service providers and leverages the SASB materiality framework to generate unique scores for 6,000+ companies’ performance against regional and global industry peers. “We believe that a company’s ESG score will soon effectively be as important as it credit rating.”

The Sustainable Accounting Standards Board

About SASB’s continuing progress:  Recommendations for corporate disclosure centered on materiality of issues & topics were fully developed in a multi-party process (“codified”) concluding in November 2018 for 77 industry categories in 11 sectors by a multi-party process.

The recommendations are now increasingly being used by public companies and investors as important frameworks for enhanced corporate disclosure related to ESG risks and opportunities. 

To keep in mind: A company may be identified in several sectors and each of these should be seriously considered in developing the voluntary disclosures (data sets, accompanying narrative for context).

Bloomberg LP (the company headed by Mayor Michael Bloomberg, now a presidential candidate seeking the Democratic nomination) is a private company but publishes a SASB Disclosure report. (Bloomberg is the chair of SASB as well as the leader of his financial information firm.)

The company published “robust” metrics using the SASB on three industry categories for 2018: Internet & Media Services; Media & Entertainment; Professional & Commercial Services.

Bloomberg LP is privately-owned; this was an example for public company managements. The report explained:

“The nature of our business directs us to consult three industries (above). We provide a distinct table for each…containing topics we have identified as material and against which we are able to report as a private company. Quantitative data is followed by narrative information that contextualizes the data table and is responsive to qualitative metrics.”

Solid advice for company boards and executives beginning the expansion of disclosure using the SASB.

SASB Guidance

SASB provides a Materiality Map for each sector (SASB uses its SICS® – The Sustainability Industry Classification System) and provides a Standards Navigator for users. There is also an Engagement Guide for investors to consider when engaging with corporates; and, an Implementation Guide for companies (explaining issues and SASB approaches).

The fundamental tenets of SASB’s approach is set out in its Conceptual Framework: Disclosures should be Evidence-based; Industry-specific; Market-informed.  The recommended metrics for corporate disclosure include fair representation, being useful and applicable (for investors), comparable, complete, verifiable, aligned, neutral, distributive.

Accounting and Audit Professionals Advised: Tune In to SASB

Separate of the BlackRock and SSgA advice to companies and investors, accounting and auditing professionals working with their corporate clients are being urged to “tune in” to SASB.

Former board member of the Financial Accounting Standards Board (“FASB”) Marc Siegel shared his thoughts with the New York State Society of CPAs in presenting: “SASB: Overview, Trends in Adoption, Case Studies & SDG Integration”.  The Compliance Week coverage is our Top Story in the newsletter this week.

Marc Siegel is a Partner in E&Y’s Financial Accounting Advisory Service practice, served a decade on the FASB board (managers and shapers of GAAP) and was appointed to the SASB board in January 2019.

He was in the past a leader at RiskMetrics Group and CFRA, both acquired by MSCI, and is recognized as a thought leader in financial services – his views on SASB will be closely followed.

With the growing recognition of the importance of SASB recommendation for disclosure to companies and the importance of SASB’s work for investors, he encouraged the gathered accountants to get involved and assist in implementing controls over ESG data, suggesting that SASB standards are a cost-effective way for companies to begin responding to investor queries because they are industry-specific. 

Accountants, he advised, can help clients by putting systems in place to collect and control the data and CPA firms can use SASB standards as criteria to help companies that are seeking assurance for their expanding sustainability reporting.

This is an important call to action for accounting professionals, helping to generate broader awareness of the SASB standards for those working with publicly-traded companies and for internal financial executives.

The G&A Institute team has been working with corporate clients in recent years in developing greater understanding of the SASB concepts and approaches for industry-specific sustainability disclosure and helping clients to incorporate SASB standards in their corporate reports. 

We’ve also been closely tracking the inclusion of references to “SASB” and inclusion of SASB metrics by public companies in their reporting as part of our GRI Data Partner work. ‘

The G&A Institute analyst teams examine and assess every sustainability report published in the USA and have tracked trends related to how companies are integrating SASB disclosures into their reporting. 

What began as a trickle of SASB mentions in corporate reports several years ago is now increasing and we are capturing samples of such inclusions in our report monitoring and analysis.

Over the past four+ years we’ve developed comprehensive models and methodologies to assist our corporate client teams incorporating SASB disclosures in their public-facing documents (such as their sustainability / responsibility / citizenship reports, in Proxy Statements, for investor presentations and in other implementations).

Our co-founder and EVP Louis Coppola was among the first in the world (“early birds”) to be certified and obtain the SASB CSA Level I credential in 2015.

If you’d like to discuss SASB reporting for your company and how we can help please contact us at info@ga-institute.com

There’s information for you about our related services on the G&A Institute web site: https://www.ga-institute.com/services/sustainability-esg-consulting/sasb-reporting.html

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