How much actual ESG capital is invested in stocks? Q2'17 update
During Q2 2017 Leaders Arena continued its quest to follow investor progress and track the integration of Environmental, Social and Governance criteria by asset managers and owners within the equity space.
While continued regulatory uncertainty surrounds the US within governance and the potential repeal of Dodd-Frank, and the environment with the announced intention to exit the Paris agreement, a large number of US asset managers and owners continued to act independently embracing ESG investing. As a result, ESG-integrated equity assets under management continued to grow rapidly during this quarter, this time led by investors based from the least expected of investment geographies: the US .
Headlines from our research this quarter:
The US overtook the UK and Norway as the largest ESG market
The average ESG ownership in companies reached 10.1%, 43% YoY growth rate
Future ESG growth is likely to continue being led by US investors and institutions outside Europe where, as we see in a number of countries, ESG integration has become mainstream investing
We are monitoring progress in Japan, especially as its Government Pension Investment Fund, the largest asset owner, continues to make commitments and strides to integrate ESG within their manager selection process
The recent RI Europe 2017 conference held in London highlighted some of the main investment themes which we have followed during the last couple of years. Climate change, governance, social impact…but the key takeaway point from the event was the pivotal importance of investors’ ESG engagement with listed companies. As John Rogers, the former CEO of the CFA Institute emphatically put it during his keynote speech at the event, 'the work of engagement with companies is the most important choice you can make today as investors'.
ESG-led ownership in listed companies, now averaging 10.1% globally, grew 31% during the last twelve months. As a result, a growing number of companies are noticing an increase in the number of ESG-related inquiries from ESG managers as well as from mainstream institutional investors which are somewhere along the journey towards achieving full ESG integration.
ESG analysts rely on extensive sets of data to derive company scores and investment recommendations. Yet the true sustainability story of a company can be hidden behind the numbers. Hence the reason why we encourage companies, and in particular Investor Relations professionals, to proactively reach out to ESG analysts. It is important that the ESG investors hear the individual sustainability and governance story directly from the company itself. In particular, details on how the company is making progress, the challenges it is encountering, and how these themes fit in the overall strategy of the company and in their value creation process, can make a huge difference on how a company is perceived and its ability to attract ESG-driven investors.
Leaders Arena’s proprietary methodology looks closely at a manager’s commitment and evidence of ESG integration.
This June 2017 edition of our ESG Equity Market Monitor shows an acceleration of growth in the equity assets that show meaningful integration of environmental, social and governance performance aspects by asset managers. Our research shows that ESG equity assets under management reached $3.51tn as a result of a 43% year-on-year asset growth. Client demand, in particular from pension funds, the widespread acknowledgement of the benefits of integrating ESG and a stronger regulatory environment in Europe continue to drive the adoption of ESG integration by an increasing number of managers.
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Leaders Arena’s proprietary research continuously tracks the key ESG factors driving capital allocation in each sector and geography which helps companies prioritise their responses to ESG-related requests and prepare investor engagement adequately.
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Access our June 2017 ESG Equity Market Monitor report: