Sustainable, responsible and impact (SRI) investing in the United States continues to expand at a healthy pace. The total US-domiciled assets under management using SRI strategies grew from $8.7 trillion at the start of 2016 to $12.0 trillion at the start of 2018, an increase of 38 percent. This represents 26 percent—or 1 in 4 dollars—of the $46.6 trillion in total US assets under professional management.
Since 1995, when the US SIF Foundation first measured the size of the US sustainable and responsible investment universe at $639 billion, these assets have increased more than 18-fold, a compound annual growth rate of 13.6 percent. (See Figure A)
Through surveying and research undertaken in 2018, the US SIF Foundation identified, as shown in Figure B:
• $11.6 trillion in US-domiciled assets at the beginning of 2018 whose managers apply various environmental, social and governance (ESG) criteria in their investment analysis and portfolio selection, and
• $1.8 trillion in US-domiciled assets at the beginning of 2018 held by institutional investors or money managers that filed or co-filed shareholder resolutions on ESG issues at publicly traded companies from 2016 through 2018.
After eliminating double counting for assets involved in both strategies, the net total of SRI assets at the beginning of 2018 was $12.0 trillion.
ESG Incorporation by Money Managers
The US SIF Foundation identified 365 money managers and 1,145 community investing institutions in 2018 incorporating ESG criteria into their investment analysis and decision-making processes. The $11.6 trillion in assets under management they represent is a 44 percent increase over the $8.1 trillion in ESG incorporation assets identified among money managers and community investing institutions in 2016. Of this 2018 total:
• $8.6 trillion were managed on behalf of institutional investors and $3.0 trillion were managed on behalf of individual investors, as shown in Figure B,
• $2.6 trillion—or 22 percent—were managed through registered investment companies such as mutual funds, exchange traded funds, variable annuities and closed-end funds, as shown in Figure C,
• $588 billion—or 5 percent—were managed through alternative investment vehicles, such as private equity and venture capital funds, hedge funds and property funds,
• $753 billion were managed through other commingled funds,
• $185 billion were managed by community investing institutions, and
• the majority—$7.5 trillion, or 64 percent—were managed through undisclosed investment vehicles, described here as “Uncategorized Money Manager Assets,” highlighting the limited nature of voluntary disclosures by money managers incorporating ESG criteria.
In terms of assets, money managers as a whole incorporated ESG factors fairly evenly across environmental, social and governance categories, as shown in Figure D.
• Overall, in terms of the assets affected, money managers incorporated social factors slightly more than environmental and governance criteria. Social criteria incorporation by money managers increased 39 percent from 2016 to $10.8 trillion.
• The largest growth over the past two years was in the product-specific category, at over 125 percent, from $2.0 trillion to nearly $4.5 trillion. Tobacco-related restrictions saw the greatest growth of any ESG criteria, increasing 432 percent from 2016 to $2.9 trillion.
• However, climate change was the most important specific ESG issue considered by money managers in asset-weighted terms; the assets to which this criterion applies more than doubled from 2016 to 2018 to $3.0 trillion, as shown in Figure E.
• Conflict risk was the leading social criterion at $2.3 trillion assets under management, but assets managed with human rights criteria were next at $2.2 trillion and experienced much larger growth from 2016.
• Transparency and anti-corruption, also affecting $2.2 trillion in money manager assets, was the top specific governance criterion, with growth over 200 percent from 2016.
• Although not shown in Figure E, concern among money managers and their clients about civilian firearms was reflected in the fact that $1.9 trillion in assets were subject to restrictions on investments in weapons, a nearly five-fold increase from 2016.
ESG Incorporation by Institutional Investors
In addition to money managers, the US SIF Foundation also conducted research on 496 institutional investors with $5.6 trillion in ESG assets. Because money managers do not disclose information about their institutional clients, the data received from these institutional asset owners shows how and why they incorporate environmental, social and governance criteria into their investment analysis and portfolio selection. The group included institutional asset owners and plan sponsors such as public funds, insurance companies, educational institutions, philanthropic foundations, labor funds, hospitals and healthcare plans, faith-based institutions, other nonprofits, and family offices. Of this $5.6 trillion in institutional ESG assets:
• Public funds represented the largest share (more than $3.0 trillion), as shown in Figure F.
• Social criteria were applied to $5.2 trillion (more than 93 percent), a 19 percent increase since 2016, as shown in Figure G.
• Investment policies related to conflict risk affected $3.0 trillion, as shown in Figure H, making it the single most prominent ESG criterion, in asset-weighted terms.
• Similar to trends among money managers, tobacco saw some of the largest growth as a single ESG factor, at over 120 percent.
• Continuing a trend that began in 2012, criteria related to climate change and carbon emissions remained the most important environmental issue for these institutions, affecting $2.2 trillion.
• Although not shown in Figure H, the most prominent social issue after conflict risk was equal employment opportunity and diversity, addressed in $1.6 trillion of institutional assets, a 128 percent increase from 2016.
• Investment restrictions related to weapons now affect just over $1.5 trillion in assets, a 78 percent increase since 2016.
From 2016 through the first half of 2018, 165 institutional investors and 54 investment managers collectively controlling nearly $1.8 trillion in assets at the start of 2018 filed or co-filed shareholder resolutions on ESG issues. (See Figure B.)
• As shown in Figure I, the faith-based institutions and money managers constituted the majority of these shareholder proponents, while public funds represented the largest share of assets involved.
• As shown in (Figure J below), the leading issue raised in shareholder proposals from 2016 through 2018, based on the number of proposals filed, was “proxy access.” Investors filed 353 proposals at US companies during this period to facilitate shareholders’ ability to nominate directors to corporate boards. As a result of the strong investor support for these proposals, the share of S&P 500 companies with proxy access policies grew from 1 percent in 2013 to 65 percent in 2017.
• Disclosure and management of corporate political spending and lobbying were also top concerns. Shareholders filed 295 proposals on this subject from 2016 through 2018. Many of the targets were companies that have supported lobbying organizations that oppose regulations to curb greenhouse gas emissions.
• A surge in shareholder proposals on climate change that began in 2014, when investors wrestled with the prospects of “stranded” carbon assets and US and global efforts to curb greenhouse gas emissions, has continued: 271 proposals were filed from 2016 through 2018.
• The proportion of shareholder proposals on social and environmental issues that receive high levels of support has been trending upward. During the proxy seasons of 2012-2015, only three shareholder proposals on environmental and social issues that were opposed by management received majority support, while 18 such proposals received majority support in 2016 through 2018.
• Investors are increasingly engaging in ways other than filing shareholder resolutions. A subset of survey respondents, including 49 institutional asset owners with more than $1 trillion in total assets and 88 money managers with $9.1 trillion in assets under management, reported that they engaged in dialogue with companies on ESG issues. The extent of engagement reported by money managers has increased notably since 2016, when only 61 managers with $6.9 trillion in assets reported that they engaged companies on ESG issues.