Five Statistics ESG Investors Need to Consider

Here are five notable statistics that environmental, social, and governance (ESG) investors need to consider.

1. ESG is huge, and demand continues to grow. ESG investing is estimated today at over $20 trillion in AUM, or approximately a quarter of the professionally-managed assets across the globe.
2. According to recent studies, the U.S. is playing catch-up. In Europe, “58% of pension fund investors already see ESG as an important consideration, substantially higher than 21% in the U.S. Furthermore, just 14% of pension fund investors in Europe do not think ESG will ever be an important consideration, yet this rises to 53% for investors in the U.S. The disparity is underlined by the findings that 40.3% of the average European pension fund investor’s portfolio is allocated based on ESG principles, more than double the amount in the U.S (20.1%).”¹
3. In the U.S., ESG adoption by institutional fund managers varies considerably by region. For example, 60% of funds in the Pacific region incorporate ESG into investment decisions versus just 13% in the Southeast.²

Source: https://www.callan.com/wp-content/uploads/2018/07/Callans-2018-ESG-Survey.pdf

4. Millennials and women are helping drive ESG demand. This should have a dramatic impact on the ESG landscape, as these two demographics are rapidly accumulating wealth. “Over the next two to three decades, the millennial generation could put between $15 trillion and $20 trillion into U.S.-domiciled ESG investments, which would roughly double the size of the current U.S. equity market. A growing body of studies suggest that millennials — as well as women — are asking more of their investments.”³
5. Investors do not have to sacrifice performance in order to have ESG exposure. Over the past few years, a growing body of research has determined that avoiding irresponsible-yet-lucrative companies is not necessarily detrimental to investment performance. Furthermore, going forward, “while ESG investing continues to gain in popularity, economic theory suggests that if a large enough proportion of investors chooses to avoid the stocks of companies with low ESG ratings, the share prices of such companies will be depressed. They will have a higher cost of capital because they will trade at a lower price-to-earnings ratio.”⁴

¹https://www.schroders.com/en/media-relations/newsroom/all_news_releases/european-investors-lead-us-counterparts-for-esg-adoption/

²https://www.callan.com/wp-content/uploads/2018/07/Callans-2018-ESG-Survey.pdf

³https://www.msci.com/www/blog-posts/esg-investing-is-here-to-stay/01251377498

⁴https://www.advisorperspectives.com/articles/2019/05/13/the-performance-sacrifice-facing-esg

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The universe of acceptable investments for ESG and SRI funds may be limited as compared to other funds. Because these funds do not invest in companies that do not meet their ESG or SRI criteria and may sell portfolio companies that subsequently violate their screens, they may be riskier than other funds that invest in a broader array of securities.