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Environmental, social, and governance (ESG) strategies are quickly evolving in the institutional investment arena. A greater emphasis on ESG from large U.S. institutional investors, consistent media coverage, and greater availability and scope of ESG-themed investment strategies has resulted in an uptick in ESG implementation rates among U.S.-based investors.
*In September 2015, Callan conducted our third annual survey to assess the status of ESG factor integration—including responsible and sustainable investment strategies and socially responsible investing—in the U.S. institutional market. The results reflect responses from 242 unique institutional U.S. funds representing approximately $2.4 trillion in assets.
*Twenty-nine percent of all survey respondents have “incorporated ESG factors into decision making,”— a broad statement whose meaning varies widely in terms of implementation by organization—up from 26% in 2014 and 22% in 2013. An additional 11% are currently considering doing so. Endowments and foundations are the highest adopters relative to other fund types, though public funds saw a material uptick in incorporation relative to a year ago (15% in 2013 to 27% in 2015).
*Corporate funds have the lowest overall integration of ESG factors at 15% in 2015, but this figure is substantially different for corporate defined contribution plans (24%) and corporate defined benefit plans (7%).
*The greatest barriers to funds incorporating ESG into investment decision making continue to be a lack of clarity over the value proposition (cited by 47% of respondents that do not incorporate ESG), a dearth of research tying ESG factors to outperformance (45%), and a perceived disconnect between ESG factors and financial outcomes (39%)