One can argue whether Environmental, Social and Governance (ESG) investing leads to better investment outcomes, but one fact that is irrefutable is that assets are on the rise. According to the Forum for Sustainable and Responsible Investing (US SIF), at the end of 2016, there was approximately $8.7 trillion invested in assets using ESG factors, up about 33% from 2014.
Source: US SIF
Of this, while the largest portion, over $5 trillion, represented institutional money in separate account and other vehicles. Retail assets are growing rapidly, however, having more than doubled since 2012. While admittedly, ESG assets still comprise a relatively small share of total investment assets, there is no denying they are gaining in share and in importance. According to the US SIF, the top reason cited by money managers for offering ESG investing was client demand (85%), followed by risk (81%), returns (80%), social benefit (73%) and fiduciary duty (63%).
Millennials Want to do Right
Millennials appear to be driving a large proportion of this demand. According to the 2014 U.S. Trust Insights on Wealth and Worth Survey, 67% of millennials (in contrast to only 35% of baby boomers) feel that investments are “a way to express social, political and environmental values.” And another study in 2015 by TIAA found that most affluent millennials were interested in competitive returns from their investments, as well as encouraging positive moves in social and environmental issues. Women, another fast-growing segment in the wealth market, also appear to have a greater propensity for consumption of ESG solutions, with a 2014 study by Morgan Stanley concluding that women investors were twice as likely to be interested in investments for both return and positive ESG impact. For all consumers of ESG, climate change appears to be the biggest hot button, and this may be partially in reaction to recent moves by the federal government. So, stay tuned; it’s possible the ESG party is just getting started.