How Asset Management Firms Address Sustainable Investing Strategies

by on Oct 09, 2017

The sustainable investing industry has been steadily evolving since the mid-1900s, gradually including more screeners for assessing holdings companies. In the 1960s, social responsible investing (SRI) practices centered on an exclusionary process of avoiding “sin stocks”: equity shares from companies involved in tobacco, weapons, liquor or gambling. In the 1980s, SRI evolved, as new supporters focused on screening investments to oppose companies that supported certain policies, such as the apartheid in South Africa. The environmental social and governance (ESG) investing movement is a direct byproduct of SRI. ESG factors screen company performance in the natural environment, its community operations and its relationship with employees, audits and shareholder rights. Another strategy within the responsible investing scope is impact investing, which is deeply rooted in environmental or social issues aiming to affect positive change and achieve financial returns.

As more clients seek to align their personal principles with investing portfolios, asset managers are increasing their range of offerings to accommodate the demand. Corporate Insight’s Asset Management Monitor – Investor tracks how traditional fund firms are expanding their ESG strategies. Within our coverage group, 40% of firms offer at least one ESG product. Most recently in May 2017, Fidelity released two ESG index funds across three share classes: Fidelity U.S. Sustainability Index Fund and Fidelity International Sustainability Index Fund. Our analysis shows firms are also integrating sustainability into ETFs. For example in 2016, OppenheimerFunds released two ESG revenue weighted ETFs: ESG Revenue ETF and Global ESG Revenue ETFs. Alternatively, some firms currently not offering ESG products seek to partner with a leading ESG firm as a subadvisor. For example, Eaton Vance recently acquired Calvert and sells its investment strategies. Similarly, Legg Mason is a subadvisor to Clearbridge, offering one ESG mutual fund and 13 other separately managed and institutional accounts.

We predict more firms will continue to focus on sustainability and expand ESG investment offerings. Putnam recently hired the former CEO from Honeybee Capital, Katherine Collins, to head its ESG investing initiative, which is slated to include mutual funds, an institutional strategy as well as thought leadership.

Fidelity Learning Center SRI Page