The world is being influenced by critical environmental and social systems experiencing major shifts and corresponding risks. Individuals, society, and the planet are all impacted by these shifts and are at risk. Concurrently, investor appetite for responsible investing has been climbing. An increasing number of investors believe that companies with strong environmental, social, and governance (ESG) practices outperform over the long term because they are better at adapting to a changing world. 

The Cerulli Report— U.S. Environmental, Social, and Governance Investing 2019: Meeting Evolving Investor Expectations defines what constitutes an ESG investing framework and analyzes the various ways that asset managers and asset owners are incorporating ESG into their investment decision-making from both a product and process standpoint.

Responsible Investing Methods

Over the past several decades, the notion of responsible investing has evolved from a portfolio construction process that avoids investments in certain industries or countries into a broad range of investment methods that include ESG considerations to aid in the development of a sustainable or responsible investment strategy.

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Most Asset Managers Embed ESG Data Into Fundamental Analysis

Research conversations and survey data from asset management firms confirm that there is a wide range of approaches and commitment in the ESG industry. Processes and purpose often vary across asset class, investment strategy, and investment teams. Asset managers tell Cerulli that their ESG integration processes continue to evolve as they enhance their knowledge, better data becomes available, and they broaden their resources.

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Environmentally Themed Products Are the Most Prominent

Of the top-five ESG themes that asset managers are considering for product development, four are environmental-related. The prevalence of “E”- related product development is consistent with Cerulli's research that shows environmental issues are top priorities for both retail and institutional investors.

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Product Lines are Shifting Toward ESG Integration and Sustainability-Related Thematic Funds

ESG product development is reallocating from products that seek to align values to those that seek to enhance value.

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Fiduciary Duty is the Biggest Factor Driving Usage of ESG Criteria for Asset Owners

A growing percentage of asset owners believe that they’re not meeting their fiduciary duty if they don’t take long-term ESG risks into consideration. Aligning investment objectives with organizations’ values, reflecting stakeholder interests, and mitigating risk are among other major factors.

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Younger Generations Represent the Highest Demand for Responsible Investing

As Baby Boomers look to retire, a significant portion of wealth will be transferred to younger generations over the next few decades. Although interest in ESG investing is most prevalent amongst Millenials, Generation X investors, a cohort with $7.6 trillion in investible assets (4x larger than that of Millennials), may be a stronger near-term target. US ESG LandingPage-Charts-06-06.jpg

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