Larger U.S.-based institutional investors — those with $20 billion or more in assets under management — are leaders in the adoption of environmental, social and governance (ESG) factors into their investment decision making, according to a report by Callan. Larger investors have increased incorporation of ESG factors into investment decisions by 136 percent from 2013 to 2017, and these survey respondents now have the highest rate of ESG incorporation at 78 percent, according to Callan’s ESG Survey 2017.
Why?
Some respondents indicated the adoption of ESG factors comes from their greater resources and bigger participant pools with constituents asking for ESG investment options.
“Selective investment strategies, as dictated by stricter corporate governance policies, have been picking up steam as investors aim to act more responsibly,” says Anna West, senior vice president, director of the Callan Institute, and co-manager of the Published Research Group. “The latest survey reinforces the importance of these not-purely financial considerations, such as fossil fuel–free investing, in the process.”
ESG adoption across all plan sizes has increased 68 percent since Callan’s first survey in 2013. By plan type, foundations had the highest adoption rate; that was more closely associated with an alignment to the specific mission and goals of the institution.
“Foundations, which are often mission-driven, continue to be early adopters,” West says.
Overall, 37 percent of plan sponsor survey respondents incorporated ESG factors into their investment decision-making process. While the top-line percentage is unchanged compared to 2016, larger plans are increasing their adoption of ESG.
It was Callan’s fifth annual commissioned ESG survey. Other highlights include:
- Industry standard: 50 percent of respondents did not attempt to define ESG, implying an acceptance of the standard definition.
- Rationale: The most frequently cited reason for incorporating ESG factors into investment decision making was a fiduciary responsibility to do so.
- Geography: Respondents located in the Pacific region of the country had the highest rate of ESG factor incorporation (56 percent) of the five regions.
- Operations: The most frequently cited implementation method for incorporating ESG factors was to add specific language to the investment policy statement.
Callan Institute and Published Research Group conducted the survey in August of 2017 and polled 105 institutional U.S. plans and trusts with more than $1.1 trillion in total assets. Approximately one-third of respondents were public funds, one-third corporate funds and one-third were endowments and foundations. “Small” funds with $500 million or less in assets represent 43 percent of respondents, and are less likely than their larger survey peers to adopt ESG practices.
The survey is offered on Callan’s Research Library website, and is titled Callan’s 2017 ESG Survey. While the website does request users to register, the survey presentation, like all of Callan’s Research Library contents, is offered at no cost.
