Slightly more than a third (35 per cent) of U.S. institutional investors are incorporating environmental, social and governance factors into investment decisions, down from a high of 49 per cent in 2021, according to a new survey by investment consulting firm Callan.

The survey, which polled more than 100 institutional investors, found 50 per cent of respondents currently incorporating ESG do so to meet their fiduciary responsibility, while 20 per cent of those not currently incorporating ESG factors are considering doing so for this reason. Among respondents already incorporating ESG factors, three-quarters (75 per cent) said they consider these factors in every investment and manager selection decision.

Nearly two-thirds (60 per cent) of all respondents said they don’t incorporate ESG into investment decision-making and roughly half (47 per cent) of these respondents said it’s because they believe the benefits are unproven or unclear.

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The most common actions involving environmental investment strategies are decarbonizing portfolios and allocating a portion of assets to positive environmental impact/climate solutions (both 21 per cent), followed closely by shareholder advocacy (20 per cent) and divestment of fossil fuel investments (17 per cent).

Among corporate pension plan sponsors, a quarter (26 per cent) said they incorporate ESG, up from 20 per cent in 2021. However, only 24 per cent of public pension plan sponsors said they incorporate ESG, down significantly from 63 per cent in 2021. Fourteen per cent of defined contribution pension plan sponsors offer a dedicated ESG investment option with an average allocation of 2.7 per cent, while seven per cent of DC plan sponsors said they intend to add an ESG option in the next year.

“The level of interest and debate about ESG has never been more intense in the U.S.,” said Tom Shingler, senior vice-president and ESG practice leader at Callan, in a press release. “While there are a number of asset owners incorporating ESG at increasingly complex levels, there is federal regulatory uncertainty and differing ESG policies across states and their pension systems, which have led to confusion and inaction in some cases.”

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