Sustainable, responsible and impact, SRI investors, have influenced the investment industry, companies, governments and other actors to address environmental, social and governance (ESG) challenges in four major areas, according to The Impact of Sustainable and Responsible Investment, a report released today by the US SIF Foundation.
Influence of SRI Investors
Drawing upon a range of data, surveys and examples, the report focuses on four significant impacts of sustainable, responsible and impact – SRI investors over the past 25 years. SRI investors have:
- changed the investment industry, leading to more SRI products and greater access to expert practitioners;
- improved public companies by stepping up active shareholder ownership and engagement on ESG issues;
- aided communities and individuals via community investing and other initiatives; and
- influenced public policy and launched organizations to promote sustainable investment.
First issued in 2013, this updated report notes that in the United States, according to biennial surveys by the US SIF Foundation, the value of assets that take into account ESG factors in investment analysis or shareholder engagement grew 76 percent between 2012 and 2014 to reach $6.57 trillion—or one out of every six dollars under professional management.
SRI Investors Push Positive Agenda
With this growth has come new evidence of SRI investors’ influence. For example:
- In 2016, in response to the growing demand for and appreciation of ESG factors in investment, MSCI and Morningstar each launched products to provide investors with assessments of how well the underlying companies in a wide swath of mutual funds perform on ESG issues.
- In response to resolutions from concerned investors, the percentage of S&P 500 companies that allowed shareholders a formal mechanism to propose candidates for board elections in the company’s annual meeting materials increased from just 1 percent in 2013 to 20 percent in 2015. These developments raise the prospect of more competitive board elections and greater board accountability.
- Numerous companies have made improvements in their environmental practices. For example, several major US food companies agreed to obtain 100 percent of the palm oil for their products from responsibly produced sources that do not clear cut tropical forests.
- Community and place-based investing, both domestically and internationally, have gained new adherents among high net worth individuals and institutional investors interested in focusing on specific geographic regions.
- More than 1.2 million investors and their representatives have commented on a 2011 petition at the US Securities and Exchange Commission to require publicly-traded companies to report their political spending. The volume of comments—the vast majority in favor of the petition—is a record in SEC rule-making history.
- US SIF and sustainable investors helped persuade the US Department of Labor to rescind a 2008 bulletin that had discouraged fiduciaries for private sector retirement plans from considering environmental and social factors in their investments. In its place, Labor Secretary Thomas Perez issued guidance that fiduciaries may incorporate “ESG-related tools, metrics and analyses to evaluate an investment’s risk or return or choose among otherwise equivalent investments.”
“We believe that this report is the broadest assessment to date of the many ways in which SRI investors have been a force for positive change,” said Lisa Woll, CEO of US SIF and the US SIF Foundation. “Since we released the first edition of this report in 2013, the interest in sustainable and impact investing has grown dramatically and its practice has become more widespread. With the recent Department of Labor guidance that makes clear that fiduciaries can consider ESG factors for retirement plans, we expect this trend to continue. That is good news for investors, companies and communities across the globe.”
SRI Investors: My Two Cents
Readers will find plenty of evidence in the report of a positive correlation between ESG standards and corporate financial performance (CFP). Too much ink is spilled to justify bringing human values into economic decisions. One of the major recent accomplishments of the SRI community is a new Interpretive Bulletin issued by the Department of Labor that assures “fiduciaries need not treat commercially reasonable investments as inherently suspect or in need of special scrutiny merely because they take into consideration environmental, social, or other such factors.” Similarly, arguments that we need to appoint or elect more women and minorities to corporate boards are usually predicated on arguments that it will lead to improved CFP.
I know such arguments are important because our fiduciary laws are generally interpreted in a homo economicus framework, sans other human values. Don’t get me wrong, The Impact of Sustainable and Responsible Investment is a truly remarkable report of substantial progress. However, I look forward to the day when we can all just admit that economics and investments are value-laden activities and that some values trump CFP. I long for the day when we don’t have to justify ethical behavior in terms of improved CFP.
I’m thinking here of the Norwegian initiative mandating boards of public companies include 40% women directors. Quotas were initiated not for economic reasons but to address societal needs for justice, democracy, participation, equality and human rights. In comparison, our country feels so crass. The ‘bottom line’ is almost always money. (read Review: Getting Women on to Corporate Boards) For more of my thoughts around this issue, read my chapter The Individual’s Role in Driving Corporate Governance in The Handbook of Board Governance: A Comprehensive Guide for Public, Private, and Not-for-Profit Board Members.
SRI Investors: US SIF Foundation and US SIF
The US SIF Foundation is a 501c3 organization that undertakes educational, research and programmatic activities to advance the mission of US SIF. The Foundation houses the Center for Sustainable Investment Education, which serves the growing need of investment professionals in the United States to gain expertise in the field of sustainable, responsible and impact investment. The Center provides education, research and thought leadership on sustainable investment to investors, investment advisors, consultants and analysts. Online and live versions are offered ofthe Fundamentals of Sustainable and Responsible Investment, a resource for investment advisors, financial planners and other financial professionals.
US SIF: The Forum for Sustainable and Responsible Investment is the leading voice advancing sustainable, responsible, and impact investing across all asset classes. Our mission is to rapidly shift investment practices towards sustainability, focusing on long-term investment and the generation of positive social and environmental impacts.
US SIF members include investment management and advisory firms, mutual fund companies, research firms, financial planners and advisors, broker-dealers, community investing organizations, nonprofit associations, and pension funds, foundations and other asset owners. Learn more US SIF.