Survey — Investing — Then Do Better

Callan US ESG Survey of 89 US funds shows 43% of funds using ESG (much lower than global CFA, MS, RBC, other surveys). (see CFA Survey here suggesting about 70% of global funds use ESG, and academic paper suggesting closer to 80% use ESG; also more recent MS survey also mainly US suggests asset owners are more interested, although below global levels)

Corporate funds = 20%, public funds =39%, Foundations = 64% (this looks low to me => 36% not using ESG), Endowments = 56%.

General adoption rates have doubled since 2013 (at start of this survey). 13% of all DC plans (both public and corporate, and incorporating ESG or not) include an ESG option in their plan lineup, compared to a 40% incorporation rate for defined benefit plans.

Over half of all respondents have NOT incorporated ESG factors (wow!) into investment decision-making (54%) in 2018 [ 2013 (78%) ]

The most common reason to not incorporate ESG: “the fund would not consider factors that are not purely financial in the investment decision-making process (52%).”

This has been one of the top three reasons against incorporating ESG since the inception of the survey. Nearly half of respondents that are not incorporating ESG cite a dearth of research tying ESG to outperformance. Personal view: This survey highlights the US difference, and (on small data) the DB vs DC, and corp vs non-corp fund differences.

(It might also be an effect of the way they asked the question.

Survey is free to access but needs registration here.

Compare it to Amel-Zadeh ...

Amel-Zadeh: ...ESG information is material to investment performance. However, which information is material likely varies systematically across countries (e.g. a country where water pollution is a more serious issue versus a country where corruption is a more serious issues), industries (e.g. an industry affected dramatically by climate change versus an industry affected by violations of human rights in the supply chain) and even firm strategies (e.g. firms that follow differentiation versus low price). For example, Khan et al. (2016) show that the vast majority of ESG data for any given industry is immaterial to investment performance and that the material information varies across industries within a sample of US stocks. Understanding how the materiality of ESG information varies across countries, industries and firm strategies therefore is of primary importance...”

This to my mind, along with this study on the benefits of Active Ownership and ESG engagement and if one puts this work together with the work on the outperformance of Global Equity managers described here, one can start to build a defense of Active Management for global managers for those using ESG....

(see CFA Survey here suggesting about 70% of global funds use ESG, and academic paper suggesting closer to 80% use ESG; also more recent MS survey also mainly US suggests asset owners are more interested, although below global levels)

The current Arts blog, cross-over, the current Investing blog. Cross fertilise, some thoughts on autism. Discover what the last arts/business mingle was all about (sign up for invites to the next event in the list below).

My Op-Ed in the Financial Times (My Financial Times opinion article) about asking long-term questions surrounding sustainability and ESG.

Current highlights:

A long read on Will Hutton looking at Brexit causes and solutions.

Some writing tips and thoughts from Zadie Smith

How to live a life, well lived. Thoughts from a dying man. On play and playing games.

A provoking read on how to raise a feminist child.

Some popular posts: the commencement address; by NassimTaleb (Black Swan author, risk management philosopher), Neil Gaiman on making wonderful, fabulous, brilliant mistakes; JK Rowling on the benefits of failure. Charlie Munger on always inverting; Sheryl Sandberg on grief, resilience and gratitude.

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Morgan Stanley: "Sustainable Investing has gone from a niche investment idea to attracting enough capital to start having an impact on global challenges at a meaningful scale. The intensity of recent growth has been driven by a fundamental shift in how investors and asset owners view environmental, social and governance (ESG) factors."

MS polled 118 asset owners.

- 84% of asset owners surveyed are at least “actively considering” integrating ESG criteria into their investment process

- 60% of asset owners integrating ESG into their investment process have only begun doing so within the last four years and 37% within the last two

(Me: This suggests movement is still in early days, though MS argue it is moving mainstream)

-78% of respondents listed risk management as an important factor driving their adoption of sustainable investing.

-77% of respondents also focused on generating returns.

The link to the survey paper is here. It chimes with the CFA ESG survey I posted about previously.

I do think that answer that 37% of asset owners only started thinking about ESG in last 2 years suggests that this might still be the early days of the movement - and if asset owners eventually reflect the end beneficiaries, which for the most part is the "person n the street" and if she increasingly younger and more interested in sustainability, then the movement has legs...

If you'd like to feel inspired by commencement addresses and life lessons try: Neil Gaiman on making wonderful, fabulous, brilliant mistakes; or Nassim Taleb's commencement address; or JK Rowling on the benefits of failure. Or Charlie Munger on always inverting; Sheryl Sandberg on grief, resilience and gratitude or investor Ray Dalio on on Principles.

Cross fertilise. Read about the autistic mind here.