Growth in ESG

Global Growth in ESG exceeds 70% for the 2 years ending 2014

  • Over $43 trillion worldwide have some form of ESG mandate
  • Assets managed with ESG strategies now account for more than one out of every six dollars under professional management in the United States
  • The assets managed at the start of 2014 by investment firms considering ESG issues grew more than three-fold—from $1.4 trillion at the start of 2012 to $4.8 trillion.
  • Corporate Engagement mandates have grown by over 54% in two years
  • Institutions are dominant corporate engagement investors, Impact Shares gives everyone a seat at the table

Demand from a changing investor base

Passively managed index funds are growing at the expense of Active management

Investors are interested in impact investing but advisors are not as interested in helping their clients find solutions.

Massive shift to passive investing, why not get Social Alpha with your financial Beta?

  • The investing public is loosing confidence in the investment management community’s ability to generate superior risk adjusted returns and is moving to low cost passive solutions.
  • Active management is not being validated or valued, less than 25% of active managers beat their index between 2002 and 2012.
  • ETFs grew at a 25% annual rate over the last decade and now have more than $1.7trillion in US assets

 

 

 

The continued disintermediation of financial advice.

  • $30 trillion of wealth is estimated to transfer from Baby Boomers to Millennials in the next two decades.
  • 85% of millennials surveyed and 76% of females say they use non-financial measures when making financial decisions (e.g. ESG and SRI) and 59% of millennials believe they haven’t seen products targeted at people like them.
  • Historically, financial advisors have rejected ESG in part due to insecurities surrounding the marginalization of their contributions should their clients judge portfolio success on anything other than risk adjusted returns.

Changing regulatory Environment (new DOL guidance)

Labor Department acknowledges fiduciaries can apply environmental, societal and governance factors when investing

  • In 2008 – DOL issued Interpretive Bulletin 2008-1 that “unduly discouraged fiduciaries from considering economically targeted investments and environmental, social and governance (ESG) factors”
  • In 2015 – DOL replaced its previous guidance with Interpretive Bulletin 2015-01, released on Oct. 22, intending to lessen concern about potential fiduciary risks for those who make “economically targeted investments.”
  • “Companies that do not pay close attention to ESG factors in their business practices are seen as being more susceptible to litigation, damaged reputations and other types of risks that detract from investment potential.”   

Investment News, January 13, 2016