Three ESG investing trends to watch in 2018
In 2017, mighty winds blew in political storms as well as climate-related ones. Surprising election results, geopolitical unrest, and reports on climate change and income inequality drew media headlines, as well as investor attention.
We believe a growing imperative to address environmental, social, and governance (ESG) issues is being felt by businesses and investors alike, and that in 2018, the following trends will drive further growth in responsible investment strategies.
US political climate
Under the Trump administration, we have seen the U.S. exit the global Paris Agreement, largely dismantle the EPA, and roll back environmental regulations. In response, more states, cities, companies and universities have taken up the banner of reduced carbon emissions and clean energy, forming groups like the We Are Still In Coalition.
For investors, directing money to ESG strategies and companies with responsible practices and policies is a way to vote with their dollars. If people can't rely on the federal government to prioritize issues such as clean water, living wages or diversity, there is recognition that more companies are doing so for sound financial and business reasons.
Among the U.S. Fortune 500, for example, 240 companies (nearly 48 percent) have set renewable energy or carbon-reduction targets, as reported in Power Forward 3.0, and cite significant cost savings from these efforts.
Proliferation of ESG products
As interest in responsible investments has spiked across the retail, institutional and retirement 401(k) channels, so has the number of ESG product offerings.
In the U.S., the number of investment products with ESG criteria — including mutual funds, ETFs and variable annuities — has compounded by 29 percent a year since 2010, according to The US SIF Foundation.1
As concerns about ESG issues continue, we believe ESG products will capture an increasing share of the investment marketplace.
Inequality a growing global threat
Income disparity has climbed steadily over the past 30 years, in both developing economies and industrialized ones. A global issue, it is, perhaps surprisingly, most pronounced in the U.S., where the gap between rich and poor has widened the most.2
We believe this trend, if left unchecked, will stifle economic growth, promote global instability and inflict significant human cost, as described in Calvert CEO John Streur's recent blog, The growing threat of inequality.
Inequality creates a vicious cycle of underprivilege, limiting people's access to education, health care and job opportunities. This in turn may undermine a country's socioeconomic structure, diminish its intellectual capital, and limit overall GDP growth.
Making a Difference
Calvert Research and Management traces its roots to Calvert Investments, which was founded in 1976. We have been addressing issues related to human rights, the environment, diversity and income inequality since the 1970s, starting with divestment over apartheid. Currently, we are focused on income equality, climate change, diversity and health issues, including the opioid crisis. Increasingly, we are developing metrics to measure the impacts of our portfolio companies in terms of carbon emissions, water usage and their proxy voting records — and reporting these metrics to our shareholders.
Bottom line: Where political will appears to have failed, investors and businesses are taking up the banner on issues such as climate change and diversity. We believe responsible strategies are likely to gain increasing market share for decades to come.
1 Report on U.S. Sustainable, Responsible and Impact Investing Trends, 2016, 36.
2 http://fortune.com/2015/09/30/america-wealth-inequality/ and see: "How wealth inequality has changed in the U.S. since the Great Recession, by race, ethnicity and income," Pew Research Center, November 1, 2017. Accessible at http://www.pewresearch.org/fact-tank/2017/11/01/how-wealth-inequality-has-changed-in-the-u-s-since-the-great-recession-by-race-ethnicity-and-income/