ESG investing—including responsible and sustainable investment strategies and socially responsible investing—had been adopted more slowly in the U.S. than in other developed markets due to differences in regulatory and political environments, among other considerations. But ESG has gained momentum in the U.S. over the last several years, and certain sizes and types of funds are making strides faster than others.
Callan’s survey, produced annually since 2013, asks investors whether or not they incorporate ESG factors into investment decision making. Of all respondents, 37% said yes, up from 29% in 2015 and 22% in 2013. Some of this increase appears to be driven by funds in the health care sector, which saw particularly high adoption rates (62%). Endowments (53%) and foundations (48%) continue to utilize ESG factors more than other fund types, though corporate funds saw a huge jump in incorporation compared to a year ago, doubling from 15% in 2015 to 30% in 2016.
Large funds (greater than $3 billion in assets) have higher rates of adoption of ESG factors into investment decision making than smaller funds, and the largest funds (more than $20 billion in assets) had the highest adoption rates at 71%. The most common implementation of ESG is to add language to the investment policy statement (cited by 53% of respondents that incorporate ESG). The greatest barrier to funds incorporating ESG into investment decision making continues to be a lack of clarity over the value proposition (cited by 63% of respondents that do not incorporate ESG). Survey results for 2016 reflect responses from 84 unique institutional U.S. funds representing approximately $843 billion in assets.
ESG issues such as climate change, fossil fuel-free investing, board pay, and the Department of Labor’s Interpretive Bulletin received considerable attention from investors and the press in 2016. Should trends in Callan’s ESG survey continue, we can expect to see more focus on these issues and others related to ESG.
