Mainstreaming Responsible Investing
We have arrived at a watershed moment in US history, when the principles and practices of sustainable, responsible, and impact investing are finally becoming mainstream. The biennial report on U.S. Sustainable, Responsible, and Impact Investing Trends 2018 (the Trends Report), published by US SIF Foundation, reveals a 38% increase over two years in the assets under professional management that integrate environmental and social corporate governance (ESG) criteria. This means that currently, one in every four dollars under professional management in this country, or $12 trillion, is invested using ethical or socially responsible criteria.
Twenty years ago, SRI assets tallied just over $600 billion. The new data shows that assets have increased 18-fold since 1995—an astounding annual growth rate of nearly 14%. The Trends Report contains self-reported data from 365 investment management firms and more than 1000 community development financial institutions and vehicles. The numbers illustrate significant growth in assets in SRI opportunities across all categories over the past two years:
- 730 mutual funds, ETFs, and other registered companies (200 more than 2016);
- 780 venture capital, private equity, real estate and hedge funds (350 more than in 2016); and,
- 1000 community investing institutions and funds whose assets have expanded by more than 50 percent since 2016 (e.g., community credit union assets have doubled during this period).
The growing popularity of socially responsible investment (SRI) can largely be attributed to investor demand, according to the report, resulting from a change in retail investor priorities as well as the stated mission and social purpose of institutional investors. A recent Eaton Vance study of 1000 financial advisors showed that about 80% of investors now ask for sustainable and responsible investment options. The entry of several large mainstream investment firms (e.g., Blackrock, Oppenheimer) has further validated the SRI approach in the eyes of conventional investors, while online platforms offering ESG options and the proliferation of ESG ratings systems for funds have increased investor awareness of and interest in this approach.
Many environmental and social issues—from climate change and Indigenous land rights to gun violence and racial and gender discrimination—have spurred public campaigns to move money from objectionable to ethically tenable options, particular in light of the governing Republican opposition to measures and regulations that address these issues.
Climate change, for example, is currently the leading ESG issue for money managers. Many have established fossil-fuel-free investment policies and filed nearly 300 shareholder resolutions that ask companies to acknowledge and report on the business risks of climate change. Other shareholder engagements, which include more than 1000 dialogues with corporate managers and over 700 ESG-related resolutions in 2018 focus on political contributions disclosure, tobacco, gun and weapons manufacturing, human rights in conflict minerals countries, alcohol, corruption, and governance (including the rights of shareholders to nominate directors to corporate boards and place such candidates on proxy ballots, a policy now in practice with 65% of S&P 500 companies). Money managers also report that nearly $2 trillion of assets under management now have restrictions on investments in weapons, a nearly five-fold increase from 2016.
The executive summary of the Trends Report can be found at https://www.ussif.org/currentandpast