As environmental, social, and governance (ESG) factors become increasingly important to both individual and institutional investors, it’s clear that ESG is more important to certain segments of the investor market than to others.

Surveys from Callan Associates that looked at the percentages of institutional investors that include ESG factors when making investment decisions found that the number of U.S. institutional investors doing so has increased to nearly 30 percent.

The annual Callan ESG Interest and Implementation Survey found that while ESG was a factor in 22 percent of institutional investors’ decisions 2013, in 2015 that number had risen to 29 percent, with foundations and endowments leading the way at 39 percent and 37 percent, respectively.

Public funds have nearly doubled their use of ESG, rising from 15 percent in 2013 to 27 percent in 2015, while corporate funds came in at an overall flat 15 percent.

However, corporate funds vary considerably when the type of plan is considered, with just 7 percent of corporate defined benefit plans using ESG; 24 percent of corporate defined contribution plans, on the other hand, are incorporating ESG into the mix.

Also, the survey found that the larger the plan, the more likely it is to use ESG factors in decisionmaking: 35 percent of funds larger than $20 billion use ESG in some aspect of decisionmaking, while funds with less than $3 billion incorporate ESG factors at a rate of 26 percent.

A separate survey by Callan of its proprietary investment manager database revealed that 14 percent of all products in its database use ESG in their investment decisions.

Global equity has the highest percentage of products using ESG, at 25 percent; real estate came in at 24 percent, and non-U.S. fixed income at 23 percent.

U.S. equity strategies lagged the field at just 9 percent. (Other reports, such as a recent SIF Foundation report, find higher concentrations in U.S. ESG investments—and in October the Department of Labor issued updated guidance on ESG factors to make it easier for plan sponsors to incorporate it into retirement plans.)

The top reasons cited by investment managers for using ESG were risk mitigation, at 48 percent, and alpha generation at 27 percent.

Shareholder engagement came in at 9 percent, with social reasons at 8 percent.

“Other” as a category captured 20 percent, and included, among others, such reasons as: to make informed investment decisions; at the client’s request; to assess and/or create value; and as part of normal research process.

Instant Insights /

ESG interest among institutional investors growing, but segmented

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