With over US$1.8 trillion in assets, the number of ESG funds has risen by 80 percent over the past seven years amid growing investor demand.
According to a report from Cerulli Associates, over two-thirds of millennial investors want their investments to have a sustainable impact on the environment.
Similarly, the report states that 46 percent of 401K retirement account holders surveyed believe investing in socially responsible firms is “very important.”
As investment in environmental, social and governance (ESG) firms becomes more desirable, MSCI has reported three underlying themes behind this momentum: evolving data and analytics, a new generation of investors and changes in global sustainability sentiment.
In addition, in October, regulations came into effect in the UK that require pension fund trustees to consider ESG principles as part of their investment holdings.
In a further sign of growth, the number of ESG funds has grown 80 percent since 2012, with a total of US$1.8 trillion in assets, according to the Financial Times.
With ESG investment on the rise, the Investing News Network (INN) spoke with Som Seif, CEO of Purpose Investments, about his recent decision to integrate ESG into the firm’s investment principles.
The interview has been edited for clarity and brevity. Read on for more of what Seif had to say.
INN: Why did you decide to incorporate ESG principles into your investment strategies?
SS: Purpose is a company that builds investment products around our core beliefs. One of those beliefs is that sustainability factors can support improved performance while also having a positive impact on society. ESG is an investment framework that incorporates factors material to a company’s performance that aren’t captured by traditional financial reporting. More information makes for a more effective investment process and ultimately higher-quality returns.
So we’re doing this because it’s something we believe in. But we want to be leaders in our industry and show everyone that there’s a better way to do what we do as money managers.
INN: Can you describe the investor appetite for socially responsible investments?
SS: There is certainly a commercial demand that’s linked to demographic trends, but for us this is about the opportunity to generate better performance for our investors.
That said, research shows that millennials and women are poised to control a growing portion of investable household assets in the years ahead. That demographic shift aligns with other research that shows millennials and women investors are much more likely to consider sustainability as an important factor when making investment decisions.
But again, for us, it’s more about doing what’s best for our investors while adhering to our core beliefs and pushing the envelope for the industry.
INN: Why is this important right now? How does this have an impact on corporate responsibility?
SS: It’s always been important, but we’re at the point now where the quantity and quality of data surrounding ESG is sufficient enough to be effectively applied to enhance portfolio outcomes. Investors and people generally are becoming more aware of the importance of sustainability, both in terms of corporations and the planet as a whole.
We expect that as ESG continues to grow in importance for investors, more and more companies will improve their practices to ensure they aren’t falling out of favor from an investment standpoint. And we hope that by showing leadership in this effort, other investment firms — hopefully many that are much larger — will follow our lead. The result will be more and more capital-supporting companies that care about ESG practices and having a real impact on society.
INN: Can you talk about some of the companies that you’re watching that rate highly on ESG principles?
SS: We use ESG as a positive screening tool and to enhance our risk-management discipline. So we don’t watch companies specifically on ESG principles, but rather incorporate ESG data into our overall investment process. We’re using an integration approach, not an exclusionary one; we’re not removing companies or industries from our process, we’re just putting a bit more emphasis on those that do score well, when all things are equal.
INN: What is your long-term view on ESG principles and the management of your funds?
SS: We believe that ESG will grow in importance over time and actually become as important as traditional financial metrics for evaluating companies. It’s impossible to predict when that will happen, but based on the increased interest from both institutional and individual investors, it could be sooner than many think.
As far as our funds are concerned, we will continue to improve how we incorporate the data into our investment process. This isn’t a one and done for us. Like everything else we do, we plan to make iterative improvements when we can.
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Securities Disclosure: I, Dorothy Neufeld, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.