Sustainable Investments Account for One-Third of AUM in US

Total assets under management (AUM) using sustainable investing strategies in the United States have grown 42% over the past two years to reach $17.1 trillion at the start of 2020 and now account for 33% of the total assets under management in the US, according to a report from US SIF: The Forum for Sustainable and Responsible Investment.

The biennial report, which provides data on US asset management firms and institutional asset owners using sustainable investment strategies, found that, since its debut in 1995, the sustainable investing industry has grown more than 25-fold, and at a compound annual growth rate of 14%. It also said the most rapid growth has occurred since 2012.

Survey respondents included institutional asset owners and plan sponsors such as public funds, insurance companies, educational institutions, philanthropic foundations, labor funds, hospitals and health care plans, faith-based institutions, other nonprofits, and family offices.

“Money managers and institutional investors are using ESG [environmental, social, and governance] criteria and shareholder engagement to address a plethora of issues including climate change, sustainable natural resources and agriculture, labor, diversity, and political spending,” Lisa Woll, US SIF Foundation CEO, said in a statement. “Additionally, retail and high-net-worth individuals are increasingly using this investment approach with $4.6 trillion in sustainable investment assets, a 50% increase from 2018.”

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The largest percentage of money managers cited managing risk as their main reason for incorporating ESG investing, while most institutional investors cited fulfilling mission and pursuing social or environmental impact as their top motivations.

The report also found that institutional investors and asset managers that practiced sustainable investing are using their clout in addition to their money to promote sustainable activities. Some 149 institutional investors and 56 investment managers controlling nearly $2 trillion in assets under management led or co-led shareholder resolutions on ESG issues from 2018 through the first half of 2020.

Among the institutional asset owners surveyed, social criteria were applied to more than 92% of the $6.2 trillion they have invested in ESG assets, according to the report. Investment policies related to conflict risk affected $2.7 trillion, making it the most prominent ESG criterion among institutional investors, in asset-weighted terms.

Meanwhile, criteria related to climate change and carbon emissions remained the most important environmental issues for the institutional investors, affecting $2.6 trillion of their investments. And tobacco remained in the top five specific ESG criteria for institutional investors, however, this decreased 3% from 2018.

Board issues were the most prominent governance criteria reported by institutional investors, which were incorporated into the management of $2.3 trillion in assets, up 32% from 2018. And sustainable natural resources and agriculture ranked as the second most heavily weighted environmental issue for institutional investors, affecting almost $2.2 trillion in assets, a 95% jump over the previous two years.

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Tags: Climate Change, ESG, Lisa Woll, sustainable investing, US SIF Foundation

The New Jersey Pension Fund’s investment portfolio lost 1.4% in September, bringing its total return for the first three quarters of the year to just 0.82%, well below its benchmark’s return of 2.83% over the same time period, while raising its total asset value to $78.35 billion.

For the fiscal year to date, the fund has returned 4.51%, just edging out its benchmark’s fiscal year-to-date return of 4.5%.

The fund underperformed over the one-, three-, and five-year time periods, returning 5.58%, 6.01%, and 7.64%, respectively, compared with its benchmark’s returns of 7.58%, 6.95%, and 8.49%, respectively, over the same time periods.

But the fund outperformed over the past 10 and 20 years, returning 7.66% and 5.45%, respectively, compared with the benchmark’s returns of 7.44% and 5.35% over the past 10 and 20 years, respectively.

The top performing asset class for the pension fund during both the first three quarters of the year and the fiscal year to date was US equities, which returned 5.49% and 9.16%, respectively, but fell short of the equities benchmark, which returned 5.58% and 9.23%, respectively, during the same time periods.

However, US equities dragged the portfolio down during September, losing 3.71% for the month. The portfolio’s US equity holdings are heavily tilted toward tech stocks as its five largest holdings are in Apple, Microsoft, Amazon, Google parent Alphabet, and Facebook.

Non-US developed market equities and emerging market equities struggled in September, and are down 5.76% and 2.49%, respectively, for the first three quarters of the year. However, both are in positive territory for the fiscal year to date—up 5.41% and 9.67%, respectively.

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The worst performing asset class during the first nine months of the year has been real return, which is down 9.8% year to date, well below its benchmark performance, which is down only 3.4% during that time. It is also the worst performing asset class for the fiscal year to date, gaining only 0.63%, but still beating its benchmark, which is down 0.69% during the same time.

The fund’s target asset allocation is 59% in global growth, 18% in income, 13% in defensive, and 10% in real return.