New US SIF Report: Leading Money Managers Vary Widely on Disclosure of Environmental, Social and Governance Criteria When Employing ESG Integration Strategies
Half of the 16 leading money managers practicing ESG integration do not fully disclose the specific ESG criteria they consider for approximately 60 percent of their combined assets under management (AUM) in this strategy, according to Unlocking ESG Integration.
US SIF Recommends Fuller Disclosure
WASHINGTON, DC, Oct. 1, 2015 —Half of the 16 leading money managers practicing ESG integration do not fully disclose the specific ESG criteria they consider for approximately 60 percent of their combined assets under management (AUM) in this strategy, according to Unlocking ESG Integration, a new report from US SIF: The Forum for Sustainable and Responsible Investment. ESG integration is the systematic and explicit inclusion by investment managers of environmental, social and governance factors into financial analysis, and is one of several sustainable, responsible and impact investing (SRI) strategies.
The 16 money managers surveyed in the report, the largest that practice ESG integration in the U.S., collectively represented more than $3 trillion in total AUM at the end of 2014. Of the total, $1.25 trillion to $2.68 trillion was subject to ESG integration, according to the ranges the firms presented in public reports. These assets represent a significant portion of the $4.7 trillion in ESG integration AUM that US SIF identified in its 2014 biennial surveyof sustainable, responsible and impact investing in the United States.
According to the report, eight of the 16 money managers do not or only partially disclose the ESG criteria they consider for at least $778 billion of their AUM employing this investment strategy, about 60% of the total ESG assets of the money managers surveyed. (See table)
“While we are heartened by the growth of ESG integration, we believe money managers must provide greater disclosure about how they implement these strategies,” said Lisa Woll, CEO of US SIF and the US SIF Foundation. “Obtaining information about the ESG criteria money managers consider in investment analysis is critical for investors to understand the impacts of ESG integration on their portfolios, as well as on the companies assessed and society at large.”
|Extent of Disclosure by Money Managers of the ESG Criteria
They Consider in Their ESG Integration Assets (US$ Billions)
|Category||No. of Money Managers||Total AUM||Total ESG Integration AUM||Unexplained* Integration AUM||Percentage AUM Unexplained|
|Partial: Fixed income only||1||$914||$274–$914||$91–$457||33%–50%|
|* “Unexplained” refers to ESG integration assets under management (AUM) for which ESG criteria are not disclosed. Total ESG Integration AUM and Unexplained ESG Integration AUM are given as ranges because money managers usually opted to provide ranges of US dollars in each asset class.|
BREADTH OF ESG INTEGRATION ACROSS ASSETS
· Of the 16 money managers, six indicated in their most recent public reports to the global Principles for Responsible Investment that they practiced 100 percent ESG integration for listed equities only, one for fixed income only, and six for both these asset classes.
· In addition, some of the money managers are applying ESG integration techniques to assets in private equity and property.
· In many cases, managers' descriptions of their ESG integration strategies and criteria provided clear evidence that ESG integration was in fact being applied across an entire asset class.
· In some cases, though, it was unclear whether ESG integration was taking place systematically. For example, one money manager described its ESG integration program as entailing sharing key ESG information with all its investment teams but without explaining to what extent the recipients actually use, or are expected to use, this information. Similarly, another manager said that its analysts were not required to review a specific set or framework of ESG indicators before deciding whether to invest in a company.
LEVEL OF DISCLOSURE REGARDING ESG CRITERIA
The 16 money managers fell into three categories with regard to how much detail they disclosed publicly on the specific ESG factors they consider in ESG integration. Fully half provided no or only partial disclosure.
· NO DISCLOSURE: Four did not publicly disclose the ESG criteria they consider.
· PARTIAL DISCLOSURE: Four money managers that practiced ESG integration across multiple asset classes provided this detail for one asset class but not all.
· FULL DISCLOSURE: Eight provided either examples or detailed information on the ESG criteria they consider for all relevant asset classes.
ESG INTEGRATION TECHNIQUES
· Most of the 16 money managers described investment strategies that fall within US SIF‘s definition of ESG integration: the systematic and explicit inclusion by investment managers of ESG factors into traditional financial analysis.
· Five of the 16 reported that as part of ESG integration, they use certain SRI strategies that the US SIF Foundation and the Global Sustainable Investment Alliance (GSIA)have seen as complementary to but separate from ESG integration such as company engagement, shareholder advocacy or proxy voting.
The report offers three recommendations to advance robust and transparent ESG integration practices.
1. Money managers should apply specific ESG criteria in ESG integration strategies and disclose their criteria.
2. Money managers should clearly articulate whether their ESG integration practice is systematic and consistent across all affected assets or applied only ad hoc or upon request.
3. To help accomplish the first two goals, investment analysts, portfolio managers, researchers, consultants and other financial professionals should take advantage of the education and training opportunities in sustainable, responsible and impact investing.
ABOUT US SIF
US SIF: The Forum for Sustainable and Responsible Investmentis the US membership association for professionals, firms, institutions and organizations engaged in sustainable, responsible and impact investing. US SIF and its members advance investment practices that consider environmental, social and corporate governance criteria to generate long-term competitive financial returns and positive societal impact. US SIF's members include investment management and advisory firms, mutual fund companies, research firms, financial planners and advisors, broker-dealers, community investing institutions, non-profit associations, and pension funds, foundations and other asset owners.
Unlocking ESG Integrationis a publication of the US SIF Foundation, a 501c3 organization that undertakes educational, research and programmatic activities to advance the mission of US SIF.
Contact: Michelle Manoff, firstname.lastname@example.org, 212.843.8051