Sustainable Investments Account for One-Third of AUM in US

Total assets under management (AUM) using sustainable investing strategies in the United States have grown 42% over the past two years to reach $17.1 trillion at the start of 2020 and now account for 33% of the total assets under management in the US, according to a report from US SIF: The Forum for Sustainable and Responsible Investment.

The biennial report, which provides data on US asset management firms and institutional asset owners using sustainable investment strategies, found that, since its debut in 1995, the sustainable investing industry has grown more than 25-fold, and at a compound annual growth rate of 14%. It also said the most rapid growth has occurred since 2012.

Survey respondents included institutional asset owners and plan sponsors such as public funds, insurance companies, educational institutions, philanthropic foundations, labor funds, hospitals and health care plans, faith-based institutions, other nonprofits, and family offices.

“Money managers and institutional investors are using ESG [environmental, social, and governance] criteria and shareholder engagement to address a plethora of issues including climate change, sustainable natural resources and agriculture, labor, diversity, and political spending,” Lisa Woll, US SIF Foundation CEO, said in a statement. “Additionally, retail and high-net-worth individuals are increasingly using this investment approach with $4.6 trillion in sustainable investment assets, a 50% increase from 2018.”

The largest percentage of money managers cited managing risk as their main reason for incorporating ESG investing, while most institutional investors cited fulfilling mission and pursuing social or environmental impact as their top motivations.

The report also found that institutional investors and asset managers that practiced sustainable investing are using their clout in addition to their money to promote sustainable activities. Some 149 institutional investors and 56 investment managers controlling nearly $2 trillion in assets under management led or co-led shareholder resolutions on ESG issues from 2018 through the first half of 2020.

Among the institutional asset owners surveyed, social criteria were applied to more than 92% of the $6.2 trillion they have invested in ESG assets, according to the report. Investment policies related to conflict risk affected $2.7 trillion, making it the most prominent ESG criterion among institutional investors, in asset-weighted terms.

Meanwhile, criteria related to climate change and carbon emissions remained the most important environmental issues for the institutional investors, affecting $2.6 trillion of their investments. And tobacco remained in the top five specific ESG criteria for institutional investors, however, this decreased 3% from 2018.

Board issues were the most prominent governance criteria reported by institutional investors, which were incorporated into the management of $2.3 trillion in assets, up 32% from 2018. And sustainable natural resources and agriculture ranked as the second most heavily weighted environmental issue for institutional investors, affecting almost $2.2 trillion in assets, a 95% jump over the previous two years.