ESG and Impact Investing: Q2 2018 News Highlights
Institutional and retail investors continue to allocate capital to ESG strategies even as the U.S. Department of Labor cautions retirement plan fiduciaries about acceptance of the ESG approach. Investors are focusing more attention on gender and ethnic diversity in the leadership of public and private companies, though the gaps in representation for women and minorities remain large.
Institutional assets in ESG branded strategies totaled $159 billion in Q4 2017, up from $86 billion five years earlier, according to eVestment.
The California Public Employees’ Retirement System (CalPERS) allocated $1 billion to a quantitative global equity ESG strategy that will be internally managed.
Greater availability of ESG data is leading technology providers to develop artificial intelligence and big data applications for asset owners and investment managers.
According to a Morningstar report released earlier in the year, the assets of U.S. mutual funds and ETFs that use ESG criteria increased to $95 billion in 2017.
In the past three years, the number of sustainable U.S. equity funds has increased nearly 50 percent to a total of 460 funds.
In mid-June, an ETF that tracks nonprofit JUST Capital’s U.S. Large Cap Diversified Index began trading on the New York Stock Exchange. JUST Capital uses public polling data to identify companies that are driving positive change on pressing social issues and weights them more heavily in its Index, which draws from the Russell 1000 universe.
In April, the U.S. Department of Labor issued guidance for private sector employee benefit plans covered by the Employee Retirement Income Security Act of 1974 (ERISA), indicating that fiduciaries of such plans “must avoid too readily treating ESG issues as being economically relevant to any particular investment choice.” The context for the DOL pronouncement was the use of ESG-themed options in employee retirement plans.
In early June, the Global Impact Investing Network (GIIN) released its eighth annual Impact Investor Survey. The report highlights trends in investor sentiment and capital allocation, based on information gathered from 229 impact investors across the globe.
Abraaj, one of the most visible champions of private equity investing in support of the UN Sustainable Development Goals (SDGs), put its fund management unit up for sale after investors expressed a lack of confidence in its continuing viability. Abraaj manages a $1 billion fund organized to invest in hospitals and other healthcare facilities in emerging markets.
According to Pitch-Book Data, more than $68 billion in venture funds went to startups founded by men in 2017, compared with $14.2 billion that went to companies started by at least one woman.
In April, nearly three dozen venture capital executives announced the formation of All Raise, an organization dedicated to increasing the number of female partners at U.S. venture firms and the share of venture funding that goes to companies with female founders.
According to an analysis of corporate filings by ISS Analytics, in the first five months of 2018, 31 percent of new board directors at the country’s 3,000 largest publicly traded companies were women. Still, in the same group of companies, women occupy only 18 percent of board seats, hold just 10 percent of lead independent director positions, and chair a mere 4 percent of all boards.
Investment consultant Meketa Investment Group has developed a new rating system that examines diversity at all levels of the managers that it recommends to clients. This will lead eventually to a letter-based grading system similar to the one that Meketa uses to assess how well managers incorporate ESG factors into their investment decision making.