INSIGHT by US SIF Foundation
| The US SIF Foundation released The Rise of ESG in Passive Investments, a report that explores the growth of passive ESG (environmental, social and governance) investing and the debate on the effectiveness of passive versus active ESG funds. The paper draws on publicly available data and insights from the US SIF Foundation research advisory committee and from additional asset manager members of US SIF.
While the vast majority of sustainably invested assets are in actively managed ESG funds, net flows into passively managed ESG funds have in recent years outpaced net flows into their actively managed counterparts. This reflects the growing popularity of both sustainable investing and passive investing, which the report documents.
As interest in passively managed ESG funds has risen, so too have critiques about them. While the report examines these concerns, it also provides feedback from asset managers with passive ESG funds. It concludes with recommended best practices for passive fund asset managers to deepen ESG approaches and impact, including through proxy voting, company engagement, disclosure about their ESG incorporation techniques, impact measurement and field building. The report also includes profiles of four ESG ETFs and four index-based mutual funds that demonstrate a range of approaches to passive ESG investing.
The report is divided into three sections:
〉Introduction: Background information on ESG index construction, core approaches to passively managed ESG investing and ESG issue areas
〉The Growth of Assets in Passive ESG Investments: An overview of sustainable investing trends, passive investing trends and passively managed ESG investment trends
〉The Debate over Passive ESG Investing: A discussion on the nature of ESG indexes, portfolio skews and the resources and incentives for corporate engagement
“This research paper shines a spotlight on the rapidly growing interest in passive ESG strategies,” said Meg Voorhes, Director of Research at the US SIF Foundation. “The advent of passive ESG funds provides more options to investors seeking sustainable impact, and we encourage these fund managers to make commitments to comprehensive ESG approaches.”
| download the report here
US SIF: The Forum for Sustainable and Responsible Investment is the leading voice advancing sustainable and impact investing across all asset classes. Its mission is to rapidly shift investment practices toward sustainability, focusing on long-term investment and the generation of positive social and environmental impacts. US SIF members include investment management and advisory firms, mutual fund companies, asset owners, research firms, financial planners and advisors, broker-dealers, community investing organizations and nonprofit associations.
US SIF is supported in its work by the US SIF Foundation, a 501(C)(3) organization that undertakes educational and research activities to advance the mission of US SIF. The US SIF Foundation will publish the 2020 Report on US Sustainable and Impact Investing Trends in November. The Foundation also offers training on the Fundamentals of Sustainable and Impact Investment and in partnership with the College for Financial Planning, offers the only sustainable investment designation in the United States, the Chartered SRI Counselor™ (CSRIC™). This graduate-level program provides financial advisors and investment professionals with the history, definitions, trends, portfolio construction principles, fiduciary responsibilities and best practices of sustainable investment.
| All opinions expressed are those of the author. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.