According to new findings from the US SIF Foundation, investors are striving to make their portfolios a little greener. The organization, which pushes for sustainable investment practices, reports that environmental, social, and governance (ESG) factors are now considered in $12 trillion in assets — or 26 percent of the U.S. assets under professional management.
Now, what does that mean in practice? Essentially investors — meaning an individual with a money manager or an institution like a company or school — can advocate for certain issues by incorporating ESG factors into their funds, plans, or portfolios. Want to support gun control reform? There’s an ESG criteria for that. Interested in achieving equal pay? There’s an ESG focus on that, too. Asset managers promote these interests by supporting sectors, companies, or projects pushing for positive change in that arena — and by avoiding groups that are doing harm.
The health of the planet is an increasingly popular ESG criteria, according the US SIF Foundation’s 2018 trends report. At the beginning of 2018, money managers noted that they had incorporated environmental factors into $10.4 trillion in assets under management. And while the majority of those assets were managed under a very general environmental criteria, some focused on specific issues.
Climate change accounted for $3 trillion in assets, a 110 percent increase since 2016. It was followed by $2 trillion in pollution and toxics, $1.3 trillion in sustainable natural resources and agriculture, $1 trillion in green building, and another $1 trillion in clean technology. Water, biodiversity, and fossil fuel divestment also racked up billion dollar sums.
The US SIF Foundation has noticed an uptick in environmental concern — particularly around climate change and carbon, which has been the most important environmental issue for institutional investors since 2012. US SIF has been tracking sustainable investments since 1995, when it released its first annual report.
“I would say that the climate [and] clean energy piece is not new to this report,” Lisa Woll, the CEO of the US SIF Foundation, said at a press conference on Oct. 31. “It has been consistent theme.”
But both Woll and Josh Humphreys, president of the Croatan Institute and one of the research leads on the report, believe investors are showing an increased interest in the environment due to more current events. Humphreys pointed to the U.S. exit from the Paris Agreement and natural disasters like Hurricane Sandy as “key drivers” in these investments. Woll added several recent policies from the Trump administration as motivating factors.
“The [rollback of] the Clean Power Plan,” she told reporters. “The new efforts to do drilling on both coasts of the U.S. All of these things make people very nervous. That IPCC report that came out two weeks ago that made it even clearer that we needed to move more quickly.”
Money managers gathered at the conference confirmed that clients are showing an increased interest in this space. Michael Lent, founding principal and chief investment officer for Veris Wealth Partners, said that “what we’re seeing from client demand, what’s really picked up over the last two to three years is a lot of interest in environmental issues.” Solar power growth and consumer success stories like Tesla, he claimed, have driven demand for greener portfolios.
It’s also forcing oil companies to reexamine their business plan. According to Humphreys, fossil fuel industry giants like ExxonMobil are waking up to the risks of relying on depleting resources.
“It’s a real serious headline risk for companies that are basically hitching their business plan to the old economy,” he said at the conference. “And there’s a new economy that’s emerging… Getting exposure to that, mitigating risk to your exposure to the old economy and getting exposure to the clean energy revolution, that is a huge driver in this arena.”
While the financial minds at the conference acknowledged the ESG assets were just a small piece of the solution to climate change, they believe sustainable investment has finally moved into the mainstream — after several years of work moving the needle.
“To me, this report’s a game changer,” Lent told reporters. “I’ve been in this space since the early 1990s when the first report was done, and you can no longer say this is a boutique industry or a niche industry. We are integrated into the overall financial services industry in every different segment… The clients want to see this change.”