US sustainable, responsible and impact (SRI) investing continues to expand. The total US-domiciled assets under management using SRI strategies grew from $6.57 trillion at the start of 2014 to $8.72 trillion at the start of 2016, an increase of 33 percent, as shown in Figure A. These assets now account for more than one out of every five dollars under professional management in the United States.
The individuals, institutions, investment companies, money managers and financial institutions that practice SRI investing seek to achieve long-term competitive financial returns. Some investors embrace SRI strategies to manage risk and fulfill fiduciary duties; many also seek to help contribute to advancements in social, environmental and governance practices. SRI investing strategies can be applied across asset classes to promote stronger corporate social responsibility, build long-term value for companies and their stakeholders, and foster businesses or introduce products that will yield community and environmental benefits.
Through a survey and research undertaken in 2016, the US SIF Foundation identified:
• $8.10 trillion in US-domiciled assets at the beginning of 2016 held by 477 institutional investors, 300 money managers and 1,043 community investment institutions that apply various environmental, social and governance (ESG) criteria in their investment analysis and portfolio selection, and
• $2.56 trillion in US-domiciled assets at the beginning of 2016 held by 225 institutional investors or money managers that filed or co-filed shareholder resolutions on ESG issues at publicly traded companies from 2014 through 2016.
After eliminating double counting for assets involved in both strategies and for assets managed by money managers on behalf of institutional investors, the overall total of SRI assets at the beginning of 2016 was $8.72 trillion, as shown in Figure C. Throughout the report, the terms sustainable, responsible and impact investing, sustainable investing, responsible investing, impact investing and SRI are used interchangeably to describe these investment practices.
Figure A – Sustainable, Responsible and Impact Investing in the US (1995–2016); SOURCE: US SIF Foundation
The assets engaged in sustainable, responsible and impact investing practices at the start of 2016 represent nearly 22 percent of the $40.3 trillion in total assets under management tracked by Cerulli Associates. From 1995, when the US SIF Foundation first measured the size of the US sustainable and responsible investing market, to 2016, the SRI universe has increased nearly 14-fold, a compound annual growth rate of 13.25 percent.
ESG Incorporation Highlights
The total assets that are managed with ESG factors explicitly incorporated into investment analysis and decision making are valued at $8.10 trillion. Of this total, $8.10 trillion were identified as managed by money managers or community investing institutions, while $4.72 trillion were identified as owned or administered by institutional investors. (The value of the institutional investors’ ESG assets we identified separately was slightly lower than the institutional portion of the overall tally of money managers’ ESG assets under management.)
ESG Incorporation by Money Managers and Investment Vehicles
The US SIF Foundation identified 300 money managers and 1,043 community investing institutions that incorporate ESG issues into their investment decision making. The dollar value of their combined ESG assets is 1.7 times the corresponding figure for 2014, when money managers and community investing institutions held $4.8 trillion in ESG assets under management.
The significant growth in these ESG assets reflects several factors. These include growing market penetration of SRI products, the development of new products that incorporate ESG criteria and the incorporation of ESG criteria by numerous large asset managers across wider portions of their holdings. Furthermore, the past two years have seen new disclosure on the part of numerous institutional investors and asset managers on how they are implementing the Principles for Responsible Investment (PRI), a global framework for taking ESG considerations into account in investment analysis, decision making and active ownership strategies.
The broad outlines of the ESG issues incorporated by money managers are as follows:
• Environmental investment factors apply to $7.79 trillion in assets under management. Climate change criteria shape the investment of $1.42 trillion in assets under management, a more than fivefold increase since 2014. Clean technology is a consideration incorporated by money managers with $354 billion in assets under management.
• Social criteria, which include criteria related to issues such as conflict risk, equal employment opportunity and diversity, and labor and human rights, apply to $7.78 trillion in assets under management.
• Governance issues apply to $7.70 trillion in assets under management, a twofold increase since 2014.
• Product-specific criteria, such as restrictions on investment in tobacco and alcohol, apply to $1.97 trillion in assets.
The number of funds incorporating ESG criteria has grown 12 percent over the last two years. These funds, which exclude separate account vehicles, and other money manager ESG assets that are not associated with a dedicated fund or other type of investment vehicle, and community investing institutions, now number 1,002 and represent $2.60 trillion, as shown in Figure B.
Figure B – SOURCE: US SIF Foundation. Note: ESG funds include mutual funds, variable annuity funds, closed-end funds, exchange-traded funds, alternative investment funds and other pooled products, but exclude separate accounts, Other/Not Listed, and community investing institutions. From 1995-2012, separate account assets were included in this data series, but have been excluded since 2014, in order to focus exclusively on commingled investment products.
REGISTERED INVESTMENT COMPANIES:
Among the universe of investment vehicles that incorporate ESG factors into investment management, 519 registered investment companies, including mutual funds, variable annuity funds, exchange-traded funds (ETFs) and closed-end funds, account for $1.74 trillion in ESG assets.
ALTERNATIVE INVESTMENT VEHICLES:
The US SIF Foundation identified 413 alternative investment vehicles—private equity and venture capital funds, responsible property funds and hedge funds—engaged in sustainable and responsible investment strategies, with a combined total of $206 billion in assets under management. They include a number of private equity funds focused on themes such as clean technology and social enterprise, and property funds focused on green building and smart growth.
OTHER INVESTMENT VEHICLES:
• Other Pooled Products: The research team identified 70 other pooled products (typically commingled portfolios managed primarily for institutional investors and high-net-worth individuals) with nearly $652 billion in assets that were invested according to ESG criteria.
• Unspecified Vehicles and Separate Accounts: Among 114 managers researched, $5.38 trillion in assets were identified incorporating ESG factors into investment management in separate accounts or investment vehicles classified as “Other/Not Listed.”
• Community Investing Institutions: A total of 1,043 community investing institutions (CIIs), including community development banks, credit unions, loan funds and venture capital funds, collectively manage nearly $122 billion in assets. CIIs have an explicit mission of serving low- and moderate income communities and individuals.
ESG Incorporation by Institutional Investors
With $4.72 trillion of ESG assets, a 17 percent increase since the start of 2014, institutional investors play a substantial role in the SRI universe documented in this report. These asset owners include public funds, corporations, educational institutions, foundations, faith-based investors, healthcare funds, labor union pension funds, nonprofits and family offices.
The leading ESG criteria that institutional investors consider are restrictions on investing in companies doing business in regions with conflict risk (particularly in countries with repressive regimes or sponsoring terrorism). Investment policies on conflict risk apply to $2.75 trillion in assets, about the same as in 2014. In second place, in asset-weighted terms, is consideration of climate change and carbon emissions; this applies to $2.15 trillion in assets, compared with just $551 billion in 2014. Institutions report that they apply unspecified general environmental, social and governance criteria to more than $1.2 trillion in assets. While tobacco-related restrictions grew in asset-weighted terms, they dropped from third to ninth place among the leading ESG criteria incorporated by institutional investors.
Investor Advocacy Highlights
A wide array of institutional investors—including public funds, religious investors, labor funds, foundations and endowments—and money managers file or co-file shareholder resolutions at US companies on ESG issues, and hundreds of these proposals come to votes each year. From 2014 to 2016, 176 institutional investors and 49 investment management firms with total assets of $2.56 trillion filed or co-filed resolutions. The number of institutions and managers actively involved in filing shareholder resolutions has remained relatively stable over the past four years.
The proportion of shareholder proposals on social and environmental issues that receive high levels of support has been on the rise. Since 2013, approximately 30 percent of these proposals received support from 30 percent or more of the shares voted. From 2007 through 2009, only 17 percent of proposals cleared this threshold.
Money managers and institutional investors are pursuing engagement strategies on ESG issues in addition to filing shareholder resolutions at publicly traded companies. Fifty-seven institutional asset owners reported that they engaged in dialogue with companies on ESG issues, as did 61 asset managers.
Figure C – SOURCE: US SIF Foundation. Note: ESG Incorporation includes community investing institutions (CIIs). US SIF Foundation identified over $5.1 trillion in the institutional portion of Money Managers’ ESG assets under management, so the Institutional Investors’ ESG assets identified separately are removed to control for the potential inflationary effects of double counting. For more details, see Chapter V: Methodology.
For additional Trends Report findings and information please visit www.ussif.org/trends