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The Future of ESG? 4 Takeaways from Some of the Country’s Biggest Investors

Though it has seen more than a decade of growth, ESG is riding an incredible wave right now. In 2019, ESG funds have already garnered an additional $8.9 billion in capital, on track to more than double last year’s entire investment of $5 billion. They now represent 25% of the $46 trillion of assets in the U.S. under professional management. 

 

Why?

That’s what we asked some of the nation’s largest corporate and pension fund investors at our recent event, co-hosted by Bloomberg – Business & Markets as a Force for Good.

Here are the top takeaways:

1. We Need More Disclosure, and ESG Is Vital to That

A recurring theme echoed by every pension fund leader was the need to have more information about a company’s future risks and long-term plans. Since most are investing for retirement on behalf of their clients, they’re looking for stable, sustainable bets, and ESG screening can help in that.

Illinois State Treasurer Michael Frerichs said it best:

2. Investment Beats Divestment

The early days of sustainable investing usually involved divesting from companies or industries that didn’t do well across environmental, social, and governance metrics. While some of that thinking clearly still exists, more and more leaders in the space believe that’s not the way to make substantial changes. 

Several speakers mentioned that the future of ESG partly revolves around having a stake in a company and a seat at the table, using that position to drive change for the better. New York State Comptroller Thomas P. DiNapoli went into greater detail on why that’s so important:

3. Companies are Driving Performance with Purpose

While investment leaders discussed how ESG funds offer a much better long-term investment with less overall risk than traditional funds, it was Indra Nooyi – former Chairman and CEO of PepsiCo – who best explained that when companies transform from the inside out to better align purpose and performance, they create a win-win for workers and shareholders alike.

4. ESG Still Needs Better Metrics and Guidance

While all of these developments are great, ESG still needs better ways to measure progress and success. As companies get better at disclosing their performance across the stakeholder landscape (including on worker pay and benefits, customer treatment, community investment, and environmental impact), and as standards emerge, so the market will get better at rewarding leaders and punishing laggards. Ashbel Williams highlighted JUST Capital’s role in this:

If you’d like to listen and watch more of this event, or learn about our investable index and JUST Alpha research series, please reach out to our Director of Investment Products, Lorraine Wilson

 

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