A Different Picture: ESG Research in the US

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New York – Asset 4, a respected ESG research provider with presence in the US, has provided an insightful response to one of our recent articles where we analyzed the status of ESG research in Europe in comparison to the one in the US. The reader’s response deserves further comment as it presents a perceptive “different picture” from the one we painted (and still believe to be coherent with our own observation and data), where we state that the US interest in ESG research is still behind the one in Europe.

In response to our view that “the demand for ESG research in the US is still lagging behind Europe,” our reader has presented us thoughtful arguments and sources indicating that ESG research in the US has strong traction (find our reader’s response at the end of this article). The accuracy of this statement is well known. Besides the four arguments raised by our reader supporting the growth of ESG research in the US, we can add that our own database shows that the number of ESG research firms inserted in the US has not been stagnant since the late 90’s. Furthermore, own experience in the research industry indicates that US investors are having growing interest in ESG research.

The existing ESG research firms in the US have acquired respectable levels in the quality of their research, especially in the governance area. In addition to Asset 4, US providers such as KLD, Innovest, and Riskmetrics, among others have strongly positioned themselves in the research space attracting a number of investors.

We believe that our reader’s “different picture” is accurate: US interest in ESG research is growing. However, we still see a lagging behind Europe in this respect. Our reader argues that according to the Social Investment Forum, in the US $1 out of every $9 is allocated to socially responsible investment. We would like to point out that according to the same source, in 1995 the ratio was $1 out of every $10. Needless to say, the improvement in the past 13 years has been less than small. Meanwhile, European responsible investments grew from $1 trillion Euros in 2005 to $1.6 Euros in 2007 – 60% in only two years.

Some have argued that the investment culture has led European investors to bear ESG issues as a priority while US investors caress profit over such issues. Lacking primary sources to measure investment culture in the US and Europe we limit our comments to our own experience and our proprietary database which includes research providers across the board and the map. As mentioned in the article commented by our reader, our data indicates that Western Europe surpasses the US in the amount of research providers created in the last decade. Also, the old continent surpasses the US in the amount and robustness of networks, grassroots movements, and legislative tools surrounding ESG issues in general, and ESG research in particular. Multiple examples can be provided of visionary efforts and measures adopted in Europe, while the US is still discussing about it. Such examples constitute enough material for writing a book on the topic, but consider for now REACH and ROHS, two EU legislative measures in place since 2006, which enforce environmental rules and precautionary principles.

The debate is open and we appreciate further comments regarding the crucial issue of ESG research in Europe and the US.

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ASSET 4 Response to Integrity’s article  

Below are just a few points that we believe present a different picture regarding US interest in ESG than your recent research piece. First, there is the fact that SRI assets under management are up 18% in the US, versus 3% for overall asset management industry. This information comes from a recent report from the Social Investment Forum in the US that paints a clear picture of the growing importance of responsible investing. It showed that in the United States, $1 out of every $9 is now invested in a socially responsible investment, and that socially conscious investment assets grew by 18% in 2005 and 2006, to a total of $2.7 trillion. While the overall universe of professionally managed assets in the US increased by less than 3%, to $25.1 trillion.  Here is a link to an executive summary of the study — “Report on Responsible Investing Trends in the U.S. 2007“. The complete study can be found at — http://www.socialinvest.org/resources/pubs/.    Second, Watson Wyatt just published a document called Defining Moments: The pensions and investment industry of the future in which they describe six near-term (five-year horizon) macro trends (Figure 1).  Asset 4 chart   As you can see trend four is directly on the issue of ESG, while in fact two also relates.   In this report (you can download a copy here) they write: 3. Extra-financial factors This could be seen as a descriptor of how the invisible hand might change, in terms of what is deemed to be important in the future:  §     demand for some big institutional funds to apply responsible investing principles §     sustainability as a mainstream and/or specialised proposition, with climate change the strongest element §     the impact of politically motivated activism §     influence of responsible investing applied through the DC democratisation process.  Significant change in this area would seem to be dependent on a change in social technology. However, the emergence of climate change as an issue of major societal importance could be the catalyst for change. Third, the CFA Institute’s recent launch of Environmental, Social, and Governance Factors at Listed Companies: A Manual for Investors to assist investors in understanding how a company deals with environmental, social and governance (ESG) issues. In the press release for this manual, Kurt Schacht, CFA, managing director of the CFA Institute Centre stated “Once considered ‘fringe issues,’ these topics are now part and parcel of the metrics used by investment professionals to analyze and value the public companies they invest in.” Fourth, a few of the recent additions to the ASSET4 US client list include CalSTRS, Rockefeller and Company, Green Alpha Advisors, and A.T. Kearney. With these factors in mind, you can see why we believe that there is a growing interest in the US for ESG research information. 

 

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