Active ownership (engaging deeply with portfolio companies).ESG integration (including ESG factors in fundamental analysis).Sustainability-themed investing (such as in a fund focused on access to clean water or renewable energy).Positive/best-in-class screening (selecting companies with especially strong ESG performance).Norms-based screening (eliminating companies that violate some set of norms, such as the Ten Principles of the UN Global Compact).Negative/exclusionary screening (eliminating companies in industries or countries deemed objectionable ).Sustainable investing encompasses a menu of strategies that can be used in combination. The average estimate was 5% the actual percentage is more like 25%. executives underestimated the percentage of their company’s shares held by firms employing sustainable investing strategies.

In a recent survey by Bank of America Merrill Lynch, U.S. Yet many corporate managers seem to be unaware of this new reality. According to a 2018 global survey by FTSE Russell, more than half of global asset owners are currently implementing or evaluating ESG considerations in their investment strategy. By April 2018, the number of signatories had grown to 1,715 and represented $81.7 trillion in AUM. In 2006, when the UN-backed Principles for Responsible Investment (PRI) was launched, 63 investment companies (asset owners, asset managers, and service providers) with $6.5 trillion in assets under management (AUM) signed a commitment to incorporate ESG issues into their investment decisions. The numbers back up the view that the capital markets are in the midst of a sea change. That’s the integrative approach we are increasingly taking for all of our investments.” (Note, Robert Eccles has consulted for State Street and several other institutions named in this article.) “We seek to analyze material issues such as climate risk, board quality, or cybersecurity in terms of how they impact financial value in a positive or a negative way. “ESG issues have become much more important for us as long-term investors,” Cyrus Taraporevala, president and CEO of State Street Global Advisors, told us, expressing a view echoed in many of our interviews. It was clear to us that corporate leaders will soon be held accountable by shareholders for ESG performance-if they aren’t already. Most of the investment leaders in our study described meaningful steps their firms are taking to integrate sustainability issues into their investing criteria. But not until recently have they translated their words into action. Of course, investors have been voicing concerns about sustainability for several decades. We found that ESG was almost universally top of mind for these executives. We know of no other research effort that involved so many senior leaders at so many of the largest investment firms. We recently interviewed 70 senior executives at 43 global institutional investing firms, including the world’s three biggest asset managers (BlackRock, Vanguard, and State Street) and giant asset owners such as the California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System (CalSTRS), and the government pension funds of Japan, Sweden, and the Netherlands. The impression among business leaders is that ESG just hasn’t gone mainstream in the investment community. Sure, some heads of large investment firms say they care about sustainability, but in practice, investors, portfolio managers, and sell-side analysts rarely engage corporate executives on environmental, social, and governance (ESG) issues. But many of them also believe that pursuing a sustainability agenda runs counter to the wishes of their shareholders. Most corporate leaders understand that businesses have a key role to play in tackling urgent challenges such as climate change.

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