FOR IMMEDIATE RELEASE
Major Investment Consultants Lag in Efforts to Integrate Environmental, Social and Governance Factors into Investment Practices
A new Ceres report shows that investment consultants retained by major asset owners such as pension funds, foundations and endowments have generally not considered environmental, social and governance (“ESG”) risks and opportunities as they advise their investor clients on their portfolios. Of the 13 U.S. and international consulting firms surveyed for the report, few have developed expertise in ESG investing, fewer than half believe environmental and social factors can impact long-term financial risk and reward, and only one integrates ESG into its risk/return and asset allocation modeling.
The report, Integrating Environmental, Social and Governance Factors Into Investing: A Survey of Investment Consultant Practices, was prepared by the Investor Network on Climate Risk (INCR), a group of 100 institutional investors with more than $10 trillion in assets under management, and the nonprofit group Ceres, which advocates for sustainable business and investment practices.
New York State Comptroller Thomas P. DiNapoli, a leading INCR member who is the trustee of the $150.6 billion New York State Common Retirement Fund, says the report shines an important light on consultants needing to elevate their focus on sustainability.
“The Common Retirement Fund has initiated several strategies to invest in companies and funds that integrate environment, social and governance factors into their investment process,” DiNapoli said. “The Ceres report vividly shows how investment consultants are only just beginning to focus on using ESG factors as critical measures of corporate performance."
INCR plans to convene several meetings this fall with institutional investors and their consultants to develop shared expectations on the integration of ESG factors into the investment process.
“It doesn’t take a crystal ball to know that the global economy is going to be profoundly influenced, indeed is being influenced already, by a set of interrelated environmental and social forces creating a whole new world of risk and opportunity for investors,” said Kirsten Snow Spalding, report co-author and director of Ceres’ California Office, who announced the report findings this week at the Council of Institutional Investors (CII) fall meeting in Seattle.
Snow Spalding went on to say, “Extreme weather events and water scarcity are already having major impacts on agriculture, energy production and the insurance industry. Global supply chains are vulnerable not only to climate-driven disruptions, but operational and reputational risks caused by poor working conditions and human rights violations that lead to labor unrest.”
“Investors have a fiduciary duty to weigh these risks and look for practices that will lead to long term value creation in their investment decisions,” added Snow Spalding. “They need to be asking their consultants to develop and provide necessary expertise to integrate ESG factors in their investment practices.”
A key first step, Snow Spalding said, is asset owners adopting policies with clear statements about the importance of ESG that will guide their consultants and all of their asset managers.”
The INCR/Ceres report recommends that asset owners, consultants and asset managers develop ESG expertise, begin integrating ESG factors into investment decision-making and corporate governance strategies, and contribute to the growing body of ESG research and expertise across the business and investor communities.
“The forces that are shaping the global economy in the 21st century are unprecedented,” says Snow Spalding. “For asset owners, consultants and managers, weighing ESG factors in investment strategy isn’t a luxury but a necessity.”
Ceres is a nonprofit group advocating for sustainability leadership. Ceres mobilizes a powerful coalition of investors, companies and public interest groups to accelerate adoption of sustainable business practices that will build a healthy global economy. Ceres also directs the Investor Network on Climate Risk (INCR), a network of 100 institutional investors with collective assets totaling more than $10 trillion. For more information, visit http://www.ceres.org and http://www.incr.com