From the US SIF
ESG Incorporation – Environmental, Social, Governance
The total assets that are managed with ESG factors explicitly incorporated into investment analysis and decision-making are valued at $6.20 trillion. Of this total, $4.80 trillion were identified within specific investment vehicles managed by money managers or community investing institutions, while $4.04 trillion were identified as owned or administered by institutional investors. (Of the institutional investor ESG assets, $2.64 trillion were identified through the responses and data that money managers provided on the portion of their vehicles held by institutional clients.)
ESG Incorporation by Money Managers and Investment Vehicles: The US SIF Foundation and its research partners identified 308 money managers and 880 community investing institutions that incorporate ESG issues into their investment decision-making, with a combined $4.80 trillion in assets under management. This is 3.4 times the corresponding figure for 2012, when money managers and community investing institutions held $1.41 trillion in ESG assets under management.
The significant growth in these ESG assets reflects several factors. These include growing market penetration of SRI products, the development of new SRI products and the fuller integration of ESG criteria by numerous large asset managers across wider portions of their holdings. Furthermore, the past two years have seen a growing commitment on the part of institutional investors and asset managers to the Principles for Responsible Investment, a global framework for taking ESG considerations into account in investment analysis, decision-making and active ownership strategies.
The broad outlines of the ESG issues incorporated by money managers are as follows:
• Environmental investment factors are incorporated in the management of 672 investment vehicles with $2.94 trillion in assets under management,
• Social criteria, which include Sudan-avoidance policies and community-related investment policies, are the most prominent in asset-weighted terms, incorporated in the management of $4.27 trillion across a wide range of 770 investment vehicles,
• Governance issues are incorporated by a total of 501 investment vehicles with $3.53 trillion in assets, and
• Product-specific criteria, such as restrictions on investment in tobacco and alcohol, are included in the management of 445 investment vehicles with $1.76 trillion in assets.
The assets and numbers of funds incorporating ESG criteria have continued a trajectory of dramatic growth since 2007. These assets, excluding assets of separate account vehicles and community investing institutions, have increased to $4.31 trillion in 925 distinct ESG funds in 2014, more than four times the $1.01 trillion tracked in 2012.
Registered Investment Companies
Among the universe of investment vehicles that incorporate ESG factors into investment management, 480 registered investment companies, including mutual funds, variable annuity funds, exchange-traded funds (ETFs) and closed-end funds, accounted for $1.94 trillion in ESG assets. This segment of the ESG investment market has more than tripled since 2012, when the US SIF Foundation identified just $644 billion in registered investment companies that incorporated ESG criteria.
Alternative Investment Vehicles
The US SIF Foundation identified 336 different alternative investment vehicles—private equity and venture capital funds, responsible property funds and hedge funds—engaged in sustainable and responsible investment strategies, with a combined total of $224 billion in assets under management.
They include a number of private equity funds focused on themes like clean technology and social enterprise, and property funds focused on themes like green building and smart growth.
Other Investment Vehicles
•Separate Account Vehicles: Among separate account managers, 214 distinct separate account vehicles with $432.9 billion in assets incorporated ESG factors into investment management.
• Community Investing Institutions: A total of 880 community investing institutions (CIIs), including community development banks, credit unions, loan funds and venture capital funds, collectively manage $64.3 billion in assets. CIIs have an explicit mission of serving low- and moderate-income communities and individuals.
ESG Incorporation by Institutional Investors: With $4.35 trillion in assets involved in ESG incorporation, in filing shareholder resolutions or in both strategies, institutional investors hold a substantial portion of the assets in the SRI universe documented in this report. These asset owners include educational endowments, public funds, corporate funds, faith-based investors, family offices, foundations, healthcare funds, labor union pension funds and other institutional investors.
Institutional asset owners across the United States now consider environmental, social or corporate governance criteria in investment analysis and portfolio selection for aggregate assets of $4.04 trillion, a 77 percent increase since the start of 2012.
The leading ESG criteria that institutional investors consider are restrictions on investing in companies doing business in Sudan or in other terrorist or repressive regimes, followed by tobacco-related restrictions, general governance considerations and executive pay. This year, equal employment opportunity and diversity rose to one of the top 10 criteria for institutional investors based on the value of the assets affected.
Shareholder Advocacy
A wide array of institutional investors—including public funds, religious investors, labor funds, foundations and endowments—and money managers file or co-file shareholder resolutions at US companies on ESG issues, and hundreds of these proposals come to votes each year. From 2012 to 2014, 175 institutional investors and 27 investment management firms with total assets of $1.72 trillion filed or co-filed resolutions. The number of institutions and managers involved in filing shareholder resolutions has remained consistent over the past four years.
Even if they are not filing shareholder resolutions, money managers are increasingly pursuing shareholder engagement strategies on ESG issues. The US SIF Foundation identified a number of money managers that engage in dialogue with portfolio companies in order to improve the companies’ ESG practices or disclosure. (In this report, the assets involved in corporate engagement efforts are not counted toward the overall total of SRI assets unless they are also involved in filing shareholder resolutions or ESG incorporation.)
