U.S. institutional investors incorporating ESG factors

About 42 percent of U.S. institutional investors incorporated environmental, social, and governance (ESG) factors into their investment decision-making process in 2019, according to Callan in its seventh annual ESG Survey.

The survey features responses from 89 U.S. institutional investors and reveals an ongoing disparity in ESG adoption rates by investor type and size. Historically, nonprofits have had the highest ESG adoption rates, and public plans have incorporated ESG factors at a higher rate than their corporate counterparts.

“A big takeaway this year is the emergence of integration as the preferred implementation trend,” said Anna West, Callan ESG practice leader. “Of those incorporating ESG, 51 percent of investors did so with every investment decision, including manager selection. They're asking investment managers how ESG is being integrated into their strategy and how they're analyzing investments through an ESG lens.”

Tom Shingler, Callan senior vice president, consultant, and ESG Committee member, added, “We see increasing client demand for consideration of ESG factors, and we believe that an integrated ESG approach is consistent with a long-term investment horizon. Traditionally, the emphasis has been on incorporation of ESG factors in public equity investing. That has extended to fixed income in the public markets and to private markets like private equity, private real estate, and infrastructure.”

Highlights:

• New ESG investors: ESG was relatively new for most: 62 percent began ESG investing in the past five years.
• Public vs. corporate: 49 percent of public plans incorporated ESG in 2019 (increase from 15 percent in 2013). Interest in ESG from corporate plans remains tepid at 19 percent (up from 14 percent in 2013).
• Data and evaluation: Around half of respondents incorporating ESG plan to seek more, better, or different ESG data in the future, beyond Investment managers and investment consultants.
• Diversity rules: More diverse boards were more likely to incorporate ESG into investment decisions than the less diverse, as gauged by differences in gender, racial and ethnic minorities, and age.