Climate change cited as leading ESG criteria for both money managers and institutional asset owners

HIGHLIGHTS

• Both money managers and institutional asset owners cited climate change/carbon emissions as the top issue they addressed in ESG incorporation, with each group saying it applied to more than $3 trillion of the assets under their purview.
• Additionally, money managers reported applying fossil fuel divestment policies across $1.2 trillion in their assets under management, putting it in fourth place among all the ESG criteria they address. Avoidance of military/weapons related investments and tobacco-related investments ranked second and third for money managers, affecting $1.8 trillion and $1.7 trillion in assets, respectively.
• For institutional asset owners, the second most important ESG issue factored into investment decision-making was avoidance of companies doing business in countries of high conflict risk, affecting $3.3 trillion in assets. Board issues and sustainable natural resources/agriculture were the third and fourth most important ESG issues for institutional investors in asset-weighted terms, affecting $2.9 trillion and $2.8 trillion, respectively.
• From 2020 through the first half of 2022, 154 institutional investors and 70 investment managers controlling $3 trillion in AUM led or co-led shareholder resolutions on ESG issues.
• The leading ESG issue raised in shareholder proposals was on ensuring fair workplace practices, and particularly on ending de facto discrimination based on ethnicity and sex. Close behind in the numbers of proposals filed were concerns about corporate political activity and climate change.
• Community investing experienced rapid growth, with assets under management increasing 72 percent to $458 billion over the past two years and increasing more than 600 percent in the last decade.

The US SIF Foundation’s 14^th edition of the biennial Report on US Sustainable Investing Trends identifies $8.4 trillion in total US sustainable investment assets under management at the beginning of 2022. This represents 13 percent of the total US assets under professional management. The report also documents a growing focus on the inclusion of climate change and labor issues in sustainable investing.

The research for the 2022 Trends report took place as major regulatory developments occurred that will likely shape sustainable investing for years to come. The US Securities and Exchange Commission (SEC) released two proposals – one to prevent misleading fund names and another to require greater transparency around funds’ consideration of ESG factors. In addition, the Department of Labor ruled that ERISA governed pension plans may include ESG oriented funds and removed impediments to shareholder engagement and proxy voting.

The 2022 Trends report, like the 13 editions before it, counted two main strategies as sustainable investing: ESG incorporation–applying various ESG criteria in investment decision-making and portfolio construction–and filing shareholder resolutions on ESG issues.

However, this year the US SIF Foundation modified its methodology, primarily in response to the rapid growth of the field and the lack of information from a growing number of institutions on the specific ESG criteria applied in firmwide ESG integration. Thus, the methodology required more granular information regarding the incorporation of ESG issues in order to be included in the tally of sustainable investment assets. Additionally, compared to their 2020 responses, multiple money managers reported a modest to steep decline in ESG assets under management, which the US SIF Foundation believes is a reaction to the SEC’s release of the fund disclosure proposal. Together, these two developments resulted in fewer sustainable investing assets than reported in the 2020 report.

The Trends Report

The biennial Report on US Sustainable Investing Trends—first published in 1995—is the most comprehensive study of sustainable investing in the United States. The report provides data on the US asset management firms and institutional asset owners using sustainable investment strategies and examines the environmental, social and corporate governance issues they consider in managing their portfolios. The report details the types of investors involved, leading ESG criteria and the various motivations for sustainable investing.

The report identified $7.6 trillion in US-domiciled assets at the beginning of 2022 held by 497 institutional investors, 349 money managers and 1,359 community investment institutions that apply various ESG criteria in their investment decision-making and portfolio construction.

In addition, 154 institutional investors and 70 money managers controlling $3.0 trillion in assets under management led or co-led shareholder resolutions on ESG issues from 2020 through the first half of 2022.

Eliminating double counting for assets involved in both ESG incorporation and filing shareholder resolutions produces the net total of $8.4 trillion in sustainable investing strategies at the start of 2022.

Leadership and Sponsor Comments

“US SIF has raised the bar by modifying its methodology,” said US SIF Board Chair Diederik Timmer. “US SIF’s strategic goals include a focus on advancing best practices in the field, and we believe the shift in the Trends report methodology contributes to this goal.”

“Money managers and institutional investors are using ESG criteria and shareholder engagement to address a plethora of issues, including climate change, conflict risk and anti-corruption as well as labor and equal employment opportunity, corporate political activity and human rights,” said Lisa Woll, US SIF Foundation CEO. “With new issues such as biodiversity being added to the Trends Report survey, we are confident that there will be continued growth in the ESG issues that investors will consider in the future.”

Ellen Dorsey, Executive Director of the Wallace Global Fund, a progressive foundation that has made sustainable and just investing central to the management of its endowment and has supported the Trends report since 2010, noted, “The US SIF Foundation’s 2022 Trends report provides critical information on the sustainable investment industry during an important year of transition for the field. The Wallace Global Fund utilizes an impact investment strategy for our entire endowment and supports the many organizations and movements deploying finance as a lever of change. WGF utilizes the Trends report for the latest data regarding investment approaches and the analysis it provides of the field’s impact on the environmental, social and governance practices of corporations through shareowner engagement.”

“When responsible investors analyze a company’s fundamentals in conjunction with ESG criteria, it improves both investment and societal outcomes,” said Marian Macindoe, Head of ESG Stewardship at Parnassus Investments – the Visionary Sponsor of Trends. “We hope that the findings in the 2022 Trends report will help to guide investors as they build responsible investment portfolios.”

For additional Trends report findings and information please visit www.ussif.org/trends. To schedule an interview with Farzana Hoque, Acting Director of Research, Lisa Woll, CEO or Michael Young, Director of Education and Outreach or to be added to the US SIF news release distribution list, please email ussif@lowecom.com.

2022 Trends Donors and Sponsors

Wallace Global Fund, John D. & Catherine T. MacArthur Foundation, Parnassus Investments, Calvert Research and Management, ClearBridge Investments, Domini Impact Investments, MFS Investment Management, MSCI, North Sky Capital, Nuveen: A TIAA Company, Raymond James Investment Management, RBC Wealth Management, 1919 Investment Counsel, Boston Trust Walden, Brown Advisory, Community Capital Management, Governance & Accountability Institute, Natural Investments, The Sustainability Group at Loring, Wolcott & Coolidge, Trillium Asset Management

About US SIF and the US SIF Foundation

US SIF: The Forum for Sustainable and Responsible Investment is the leading voice advancing sustainable investing across all asset classes. Its mission is to rapidly shift investment practices toward sustainability, focusing on long-term investment and the generation of positive social and environmental impacts. US SIF members include investment management and advisory firms, mutual fund companies, asset owners, data and research firms, financial planners and advisors, broker-dealers, banks, community development financial institutions and non-profit associations.

US SIF is supported in its work by the US SIF Foundation, a 501(C)(3) organization that undertakes educational and research activities to advance the mission of US SIF.

Learn more at ussif.org.

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