With $12 trillion now invested in the United States, sustainable investing is not just a trend, it’s becoming part of the fabric of investing. That’s my take after reading the Report on U.S. Sustainable, Responsible and Impact Investing Trends 2018, just released by the US SIF Foundation. At the beginning of the year, according to the report, investors in the U.S. had nearly $12 trillion in sustainable, responsible, and impact investments. These investments grew at a 38% compound annualized rate between 2016 and 2018, more than twice the rate of U.S. investments overall. About one in every four dollars of invested assets in the U.S. are now invested this way.
Exhibit 1: U.S. Sustainable Investments Swell to $12 Trillion
And a lot more assets appear to be on the way as more institutional asset owners and money managers recognize that fiduciary responsibility in the 21st century includes a full consideration of the environmental, social, and governance risks and opportunities that can affect near-term and long-term investment performance. Many of these investors are also accepting the notion that they have a broader responsibility to consider the systemic social, economic, and environmental impacts of their investments.
Individual investors are starting to realize that they can make a difference with their money while also generating the returns they need to meet their financial goals. A 2017 Morgan Stanley survey found that 75% of respondents were interested in sustainable investing. Women and millennials expressed even stronger support. They now can choose from nearly 300 mutual funds and ETFs that explicitly incorporate ESG into their investment processes. BlackRock, the world’s largest asset manager rolled out a suite of iShares Sustainable Core ETFs in October. Vanguard launched two ESG exchange-traded funds in September. Many more funds have 5-globe Morningstar Sustainability Ratings based on the ESG profiles of their portfolio holdings.
Why the move to sustainable investing? For one thing, sustainability issues are becoming more consequential for companies, and the firms that manage these issues effectively are more likely to be successful over the long run.
Globalization forces companies to oversee supply chains in a responsible way and to operate in areas with scarce natural resources, which must be managed responsibly and efficiently. The intense competition for the best talent across many industries means companies must treat their workers better, not only with higher pay, but also in terms of workplace safety; having effective nondiscrimination, diversity, and family-leave policies; and the need to develop and maintain a positive corporate culture and sense of purpose.