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ESG / SRI Basics

ESG / SRI Basics

What is sustainable, responsible and impact investing? Sustainable, responsible and impact investing (SRI) is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.

SRI Assets in the United States: According to the US SIF Foundation’s 2014 Report on Sustainable and Responsible Investing Trends in the United States, as of year-end 2013, more than one out of every six dollars under professional management in the United States—$6.57 trillion or more—was invested according to SRI strategies.

Motivations: There are several motivations for sustainable, responsible and impact investing, including personal values and goals, institutional mission, and the demands of clients, constituents or plan participants. Sustainable investors aim for strong financial performance, but also believe that these investments should be used to contribute to advancements in social, environmental and governance practices. They may actively seek out investments—such as community development loan funds or clean tech portfolios—that are likely to provide important societal or environmental benefits. Some investors embrace SRI strategies to manage risk and fulfill fiduciary duties; they review ESG criteria to assess the quality of management and the likely resilience of their portfolio companies in dealing with future challenges. Some are seeking financial outperformance over the long term; a growing body of academic research shows a strong link between ESG and financial performance.

Terminology: Just as there is no single approach to SRI, there is no single term to describe it. Depending on their emphasis, investors use such labels as: “community investing”, “ethical investing”, “green investing”, “impact investing”, “mission-related investing”, “responsible investing”, “socially responsible investing”, “sustainable investing” and “values-based investing”, among others, to describe SRI investing.

What strategies do sustainable and responsible investors use?
Traditionally, responsible investors have focused on either or both of two different strategies. The first is ESG incorporation; the consideration of environmental, community, other societal and corporate governance (ESG) criteria in investment analysis and portfolio construction across a range of asset classes. An important segment, community investing, seeks explicitly to finance projects or institutions that will serve poor and underserved communities in the United States and overseas. The second strategy, for those with shares in publicly traded companies, is filing shareholder resolutions and practicing other forms of shareholder engagement. Sustainable investing strategies work together to encourage responsible business practices and to allocate capital for social and environmental benefit across the economy.

How large is the marketplace for sustainable and responsible investing?


The US SIF Foundation’s Report on Sustainable and Responsible Investing Trends in the United States identified $6.57 trillion in total assets under management at the end of 2013 using one or more sustainable, responsible and impact investing strategies. This amount has increased steadily YOY since then. 

From 2012 to 2014, sustainable, responsible and impact investing enjoyed a growth rate of more than 76 percent, increasing from $3.74 trillion in 2012. More than one out of every six dollars under professional management in the United States today—18% of the $36.8 trillion in total assets under management tracked by Cerulli Associates — is involved in SRI.

Who are sustainable, responsible and impact investors?
SRI investors comprise individuals, including average retail investors to very high net worth individuals and family offices, as well as institutions, such as universities, foundations, pension funds, nonprofit organizations and religious institutions. There are hundreds of investment management firms that offer SRI investing funds and vehicles for these investors.Practitioners of sustainable, responsible and impact investing can be found throughout the United States. Examples include:

  • Individuals who invest—as part of their savings or retirement plans—in mutual funds that specialize in seeking companies with good labor and environmental practices.
  • Credit unions and community development banks that have a specific mission of serving low- and middle-income communities.
  • Hospitals and medical schools that refuse to invest in tobacco companies.
  • Foundations that support community development loan funds and other high social impact investments in line with their missions.
  • Religious institutions that file shareholder resolutions to urge companies in their portfolios to meet strong ethical and governance standards.
  • Venture capitalists that identify and develop companies that produce environmental services, create jobs in low-income communities or provide other societal benefits.
  • Responsible property funds that help develop or retrofit residential and commercial buildings to high energy efficiency standards.
  • Public pension plan officials who have encouraged companies in which they invest to reduce their greenhouse gas emissions and to factor climate change into their strategic planning.

What are the fastest growing areas of sustainable and responsible investing?

Mutual funds are one of the most dynamic segments within the ESG investing space. The number of ESG mutual funds in the United States has grown from 333 to 456 in the past few years alone; their collective assets increasing from $641 billion to $1.93 trillion. Find member sustainable and responsible mutual funds in our Mutual Fund Performance ChartAlternative investments have also had strong growth over the last two years. These funds include social venture capital, double or triple bottom line private equity, hedge funds and property funds. The US SIF Foundation identified an estimated $224 billion in capital under the management of 336 alternative investment funds at the start of 2014, up dramatically from the $37.8 billion it identified in 177 funds in 2010. Additionally, alternative investment ESG assets have increased by 70 percent over the past two years.

Similar to the rest of the sustainable and impact investing industry, community investing has experienced dramatic growth over the last decade, though the rate of increase has slowed since 2012 with the field’s increasing maturation. From 2010 through 2012, sector assets increased 47 percent during a period when a “Move Your Money” campaign encouraged numerous investors to shift their depositary accounts from “too big to fail” banks to smaller, local, community-based financial institutions. From 2012 through 2014, sector assets increased approximately 5 percent to a total of $64.3 billion.

How do SRI funds perform?

Sustainable and responsible investing spans a wide and growing range of products and asset classes, embracing not only public equity investments (stocks), but also cash, fixed income and alternative investments, such as private equity, venture capital and real estate. SRI investors, like conventional investors, seek a competitive financial return on their investments. Numerous research studies have demonstrated that companies with strong corporate social responsibility policies and practices continually serve as sound investments. Studies with such findings have surfaced from TIAA-CREF Asset Management, Envestnet PMC, Deutsche Bank Group Climate Change Advisors, GMI Ratings, Mercer, and the United National Environment Programme Finance Initiative, among others. One such example, a 2012 study by Deutsche Bank Group Climate Change Advisors found that incorporating environment, social and governance (ESG) data in investment analysis is “correlated with superior risk-adjusted returns at a securities level.” Learn more about the competitive performance of SRI.

What is Shareholder Engagement?

Owning shares in a company gives investors a channel through which to raise environmental, social and corporate governance issues of concern. By filing or co-filing advisory shareholder resolutions at US companies, which may proceed to a vote by all shareholders in the company, active shareholders bring important issues to the attention of company management, often winning media attention and educating the public. Moreover, resolutions need not come to a vote to be effective. The process of filing often prompts productive discussion and agreements between the filers and management that enable the filers to withdraw their resolutions.From 2012 through the first half of 2014, more than 200 institutional investors and money managers collectively controlling a total of at least $1.7 trillion in assets filed or co-filed shareholder resolutions on ESG issues. Investors filed about 400 resolutions relating to environmental, social and key governance issues for the 2014 proxy season. Included in this group were resolutions asking firms for better disclosure and oversight of their political contributions and activities. Recent social and environmental resolutions have addressed equal employment opportunity, climate change, human rights and sustainability reporting. In addition, investors have filed resolutions questioning companies on their governance structures and practices, particularly those involving board composition, executive pay and responsiveness to shareholders. In recent years, these proposals have been gaining traction, and frequently receive majority support.In addition to filing or co-filing shareholder resolutions, investors can also actively vote their proxies, engage in dialogue with corporate management or join shareholder coalitions as a means to encourage companies to improve their environmental, social and corporate governance practices. In addition, investors can participate in public policy initiatives, working with government regulatory agencies, and testify and report on ESG investment issues to Congress.


In a May 28, 1998, response, the DOL advised Calvert that the fiduciary standards of ERISA did not preclude socially screened funds, as long as “the investment was expected to provide an investment return commensurate to investments having similar risks.”


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