Across the investment industry, the demand assets managed using responsible investment criteria is now on the rise, after years of mediocre growth. According to a recent survey by the Responsible Investments Association, such assets now stand at $1 trillion—a 68% increase over 2011, the last time the survey was conducted. This comes eight years after the United Nations first launched its Principles for Responsible Investment Initiative that is based on the idea that environmental, social and governance (ESG) issues can affect the performance of investments and should be used alongside traditional financial factors to make investment decisions.
But as ESG criteria gradually move into the mainstream for active managers making day-to-day decisions, they have made little headway among passive investors, says Ari Weinberg writing in Pensions and Investments. Exchange-traded funds (ETFs) have fallen behind in the push for responsible investment—there are only 10 “socially responsible” products in the U.S. ETF universe. Together they account for a lowly US$1.14 billion—just 0.06%—of ETF assets. And a big portion of that comes from two new product launches late last year from State Street Global Advisors and BlackRock—the SPDR MSCI ACWI Low Carbon Target Index and iShares MSCI ACWI Low Carbon Target Index.
Both have seed funding from the US$53-billion United Nations Joint Staff Pension Plan, notes Weinberg. They have, however, drawn little attention from other investors.
An interesting notion, however, is that a low-carbon index could provide a new benchmark for large institutions as they seek to integrate ESG principles across their investments. As they do so, why not benchmark returns against these indexes as well?
It’s something that could happen as large investors like the Harvard Management Co. and the California Public Employees’ Retirement System both seek to actively integrate ESG into all their investment decisions. Benchmarking and indexing could be part of that. You can read the entire article here.