Best Practices

ESG Hitting Its Stride in U.S.

ESG Hitting Its Stride in U.S.
clock
2 min 51 sec

Although the U.S. has strong historical roots to Europe—who can forget the Niña, Pinta, and Santa Maria?—we’ve tended to carve our own path, from the Revolutionary War onward. The evolution of environmental, social, and governance (ESG) investing has been no exception.

As recently as 2017, a survey from Schroders found that “institutional investors in Europe are significantly more advanced in terms of their adoption of ESG investment practices, compared with their counterparts in the U.S.” The reasons behind this are myriad (differences in the regulatory environment, political climate, and cultural context). But the bottom line: We’re still proud of our history of doing things our own way.

Callan’s sixth annual ESG Survey, published in July 2018, finds that U.S. investors are starting to find their own path forward with ESG investing. For the purposes of our survey, we included as broad a definition of ESG as possible, and looked at various paths to implementation, as we have found that U.S. investors tend to interpret ESG in unique ways that are most meaningful and relevant to their organization.

Our survey finds that U.S. investors are starting to catch up to their European counterparts and increasingly adopting ESG practices in their portfolios. In 2018, 43% of funds surveyed incorporated ESG factors into investment decisions—nearly double the percentage in 2013.

Funds that have incorporated ESG factors into investment decisions over time

What’s driving this uptick? Three reasons: risk mitigation, the pursuit of long-term returns, and the desire to demonstrate deeply held beliefs that are ingrained elsewhere in the organization but had previously not been present in the investment portfolio. (See full survey results, including motivations for and against ESG usage, here.)

The steady upward trend in ESG implementation across the last six years has manifested in multiple ways for the U.S. institutional investors that responded to our survey. Investors are engaging with investment managers around ESG, both at the manager selection phase and with existing investment managers. Shareholder engagement is gaining traction, with half of funds using this implementation strategy (vs. one-third in 2017).

How fund are incorporating ESG

Foundations and endowments have adopted ESG into investment decision-making at a greater clip than other fund types over the last six years, a trend that continued in 2018 at 64% and 56%, respectively. More than one-third of public funds reported incorporating ESG (39%) in the 2018 survey, up from 35% in 2017. And large funds tend to lead their smaller counterparts: Nearly three-quarters of the largest respondents ($20 billion or greater) have incorporated ESG factors into investment decisions. The largest funds have incorporated ESG factors at the highest rate since the inception of the survey in 2013.

There is one big difference between the New World and the Old World when it comes to ESG investing. Regulation has played a clear role in pushing European pensions and other institutional funds to adopt an ESG framework (in 2016 the European Parliament approved rules requiring that major workplace retirement plans do so by 2019). In the U.S., investors—and not regulators—have been blazing the trails for ESG. While the U.S. Department of Labor has not issued any such guidelines, U.S. investors are finding that ESG practices can help them to better assess the suitability of available investments, and that an ESG lens is another tool to fulfill fiduciary responsibility.

As has been true for 300 years, the U.S. is still borrowing some ideas from Europe but putting its own spin on them!

Callan College banner

Posted by

Share
Share on facebook
Share on twitter
Share on linkedin
Related Posts
ESG

Interest in ESG Stays Level, Exclusive Callan Survey Finds

Hannah Vieira
Callan experts explain the results of the 2024 ESG Survey.
ESG

SEC Releases Final Climate Disclosure Rules

Kristin Bradbury
An explanation of the final SEC climate disclosure rules and what they mean for institutional investors.
ESG

The Heat Is On! Carbon-Footprinting Basics for Institutional Investors

Amit Bansal
Amit Bansal explains what carbon-footprinting means for institutional investors.
ESG

Callan Study Examines ESG Practices by Investment Managers

Kristin Bradbury
Kristin Bradbury summarizes our 2023 Asset Manager ESG Study.
ESG

S&P Global Moves Away from Numeric ESG Credit Indicators

Kristin Bradbury
Kristin Bradbury explains why S&P Global dropped its numeric credit indicators and what it means.
ESG

The ESG Rule Explained, Part 4: The DOL's Goals

ESG Consulting Group
Tom Shingler interviews a legal expert on the ESG rule issued by the Department of Labor.
ESG

The ESG Rule Explained, Part 3: Shareholder Rights

ESG Consulting Group
Tom Shingler interviews a legal expert on the ESG rule issued by the Department of Labor.
ESG

The ESG Rule Explained, Part 2: DC Plan Lineups

ESG Consulting Group
Tom Shingler interviews a legal expert on the ESG rule issued by the Department of Labor.
ESG

The ESG Rule Explained, Part 1: Fiduciary Principles

ESG Consulting Group
Tom Shingler interviews a legal expert on the ESG rule issued by the Department of Labor.
ESG

Biodiversity: A Relatively New Theme for ESG-focused Investors

Kristin Bradbury
Kristin Bradbury discusses the relatively new type of ESG thematic investing focused on biodiversity.

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.