American ESG Now a Trillion Dollar Business

Economy and Society is Ballotpedia’s weekly review of the developments in corporate activism; corporate political engagement; and the Environmental, Social, and Corporate Governance (ESG) trends and events that characterize the growing intersection between business and politics.

ESG developments this week

On Wall Street and in the private sector

S&P launches new sustainability project

On April 22, S&P Global announced the formation of a new organization intended to be its one-stop-shop for information, intelligence, and data on corporate sustainability practices. The new operationnamed Sustainable1was described as follows in a company press release:

“This new centralized group represents S&P Global’s integrated sustainability offerings and is comprised of a dedicated team that provides comprehensive views on sustainability, including key ESG and climate topics. Sustainable1 brings together S&P Global’s resources and full product suite of benchmarking, analytics, evaluations, and indices that provide customers with a 360-degree view to help achieve their sustainability goals….

With the launch of S&P Global’s new ESG and sustainability organization, the Company is also debuting the S&P Global Sustainable1 Knowledge Hub. This new site is a comprehensive public resource for the markets that brings together insights and thought leadership from all four S&P Global divisions, including the centralized Sustainable1 group, to provide data and well-informed points of view on critical topics like energy transition, climate resilience, positive impact and sustainable finance.”

According to the press release, among the divisions to be integrated into Sustainable1 are “S&P Dow Jones Indices,” “S&P Global Market Intelligence” and “S&P Global Ratings.”

American ESG is now a trillion dollar business 

According to Seeking Alpha’s research director Tom Roseen, the American ESG mutual fund and ETF business now has, for the first time ever, more than $1 trillion in assets under management. In an April 24 note, Roseen wrote:

“U.S. investors pushed equity funds to their fourth consecutive quarter of plus-side performance in Q1 2021. Investors embraced the $1.9 trillion stimulus package signed into law by President Joe Biden in late March, the Federal Reserve Board’s commitment to keeping interest rates low through at least 2023, and the rollout and improving distribution of COVID-19 vaccines.

All of these factors contributed to relatively strong returns for equity funds and ETFs during the quarter, with the average equity fund posting a 6.31% return, with Lipper’s Sector Equity Funds macro-classification (+8.94%) leading other macro-classifications….

Investors injected some $33.6 billion into SRI and ESG focused mutual funds and ETFs (collectively, responsible investing [RI] funds) during Q1 2021, bringing the one-year net inflows total to $121.7 billion. Assets under management for U.S. RI funds rose 7.05% from $940.5 billion on December 31, 2020, to $1.007 trillion on March 31, 2021.”

American companies join European companies in aligning management values with ESG values

As has been noted previously in Economy and Society, European (and, to a lesser extent, Canadian) corporations have taken a page out of the late 1970s shareholder primacy model of corporate behavior and have begun aligning corporate executives’ values with ESG values by linking their compensation to their ESG performance. Over the last few months, various signs appear to indicate that such an alignment transformation may be underway in American corporations as well. First, for example, is the following note, posted last Wednesday by Yahoo Finance:

“Environmental, social, and governance (ESG) investing is starting to make its way into executive compensation.

“Compensation is the ultimate governance mechanism that we have to make sure (that) companies are doing things right,” said Peter Reali, New York-based managing director and head of engagement for Nuveen, in a Pensions & Investments article.

“ESG issues are making their way into compensation conversations because shareholder proponents want it integrated into executive compensation design, to create accountability for executing on ESG commitments,” said Reali….

“Many European companies already incorporate ESG metrics into executive pay. In a study of 365 issuers from major indexes in continental Europe and the UK, 68 percent have at least one ESG metric in their incentive plans, according to Willis Towers Watson,” an IR Magazine article said. “But companies are under pressure to go further. Investors want to see stronger links between ESG, strategy and pay. In particular, they are pushing for significant metrics on key sustainability topics, like climate change and diversity.””

On Friday, Bloomberg followed that up with an article about changes underway at Alphabet, the parent company of Google:  

“Alphabet Inc. said it will create a bonus program for senior executives that’s partly based on their performance in supporting environmental, social and governance goals.

The program will begin in 2022, the company’s Chairman John Hennessey wrote in an annual proxy filing. ESG goals “have long been a key part of Alphabet and Google’s work,” he added in a letter to shareholders. The Google parent company will hold its annual meeting on June 2.

Hennessey also addressed diversity and workplace harassment in the letter, saying the Alphabet board agreed on a series of “principles and improvements” that incorporated input from employees and stockholders. That included the creation of a new Diversity, Equity, and Inclusion Advisory Council, which comprises senior company executives and external experts in the field.”

In the spotlight

Women in ESG

A recent survey of clients conducted by RBC (Royal Bank of Canada) Wealth Management showed that interest in ESG is quickly rising among RBC’s clients, and that that interest is being driven primarily by women. According to a summary of the survey published by Environment and Energy Leader, RBC’s results were as follows:

“Respondents who identified as women are more than twice as likely as men to say it is extremely important that the companies they invest in integrate ESG factors into their policies and decisions. The survey also found that 74% of women were interested in increasing their share of ESG investments in their current portfolios and were significantly more likely than men to have an interest in learning more about ESG investing.

While the survey revealed that women are leading the charge in ESG investing, more than half of male respondents (53%) also expressed interest in increasing the share of ESG in their current portfolio, and 61% of clients overall shared this position….

The results of RBC’s survey support the growing industry wide enthusiasm for ESG investing. A new report from non-profit foundation US SIF: The Forum for Sustainable and Responsible Investment found that at the start of 2020, $17.1 trillion was invested in responsibly invested assets in the US, up a staggering 42% from $12 trillion just two years prior. ESG investing was among most popular responsible investing strategies, accounting for a third of all managed assets in the US.”

Notable quotes

“The idea of having a return is important for the planet….Because if you really want businesses to engage, if you want business to really turn around and do this at scale … it has to be because there’s a return on that investment. Otherwise, it’s just philanthropy. And so much of what we’re doing at Apple is showing that the business of doing right by the planet is good business.”