US Pension Funds get “Green Light” On Sustainability

In recognition of mounting research showing companies with well developed ESG reporting programs enjoy higher annual returns and are less likely to suffer extreme volatility, the US Department of Labor retreated on guidance issued nearly ten years ago that discouraged investors from using ESG criteria in their investment decisions. The new guidance affects pension plans and other investors governed by the Employee Retirement Income Security Act of 1974 (ERISA).

With the 2008 guidance overturned, up to $8.4 trillion in pension money can now move into companies and funds that take ESG into consideration.

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The fresh capital could compound the already startling increase of money moving into so-called "Socially Responsible Investment" (SRI) vehicles, which have seen a 76% increase in assets under management over the last two years. Data compiled by The  Forum for Sustainable and Responsible Investment (US SIF) confirms this stunning growth in a seminal report on ESG integration among money managers. The report found "systematic and explicit inclusion by investment managers of ESG factors into traditional financial analysis." Particularly interesting were that, at the start of 2014:

  • $6.20 trillion in US-domiciled assets were practicing ESG incorporation
  • $1.72 trillion in US-domiciled assets were held by institutional investors or money managers that filed shareholder resolutions on ESG issues from 2012 through 2014.

The report went on to catalogue the top money managers using ESG in their investment process. Here's the top ten.

World's Top 10 Money Managers with Esg integration strategies

Asset Manager AUM (BN) Approach Uses Reporting Standards
Calvert Investments $12.4 "For listed equities, Calvert uses a proprietary framework to incorporate ESG information into its research process, including the due diligence phase and maintenance research of portfolio holdings." Y
Janus Capital Management $119.9 Janus incorporates the concepts of ESG in the financial analysis of companies as part of the fundamental research process to better understand risks/opportunities and drive value-creation for clients. N
MFS Investment Management $430.8 "In listed equities, MFS integrates a company’s ESG risks and opportunities into the overall security analysis to the extent it believes that such factors are material to and have an economic impact on shareholder value. " N
Miller/Howard Investments $8.7 "Miller/Howard Investments uses an “integrated approach,” which in its view includes screening, shareholder advocacy, proxy voting, coalition building and public policy involvement. " Y
Parnassus $14.7 " ESG research is fully integrated into the investment process such that both fundamental and ESG research analysts are able to identify and address company-specific ESG issues." Y
PAX World Investments $3.4 "Pax World integrates ESG issues into the following aspects of investment analysis for listed equities: macroeconomic analysis, industry analysis, analysis of company strategy and quality of management, idea generation and portfolio construction." Y
Pictet Asset Management $178 "Pictet has implemented a company-wide ESG integration program that entails sharing critical ESG information with all investment teams. " N
Principal Global Investors $333.2 "ESG issues are considered within the investment process as part of the fundamental research driving security selection." Y
TIAA-CREF $620.3 For listed equities, broad concerns relating to ESG factors are typically expressed as risk factors that may reduce an investment’s fair value and increase its potential downside risk. Y
Wellington Management Company $914 "Wellington’s ESG integration strategies include curating internally and externally generated EGS research
and conducting in-depth portfolio reviews to assess ESG risks and opportunities at the portfolio level, as
well as engaging with companies invested in through proxy voting and engagement."
Y

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