October 15, 2019
Last week financial
services firm Morningstar hosted its second quarterly webinar on sustainable
investing where Director of Sustainability Research, Jon Hale, noted two trends
since the firm’s inaugural seminar on Environmental, Social and Governance (ESG)
investing in May.
First, the notion of
corporate responsibility is changing, most notably through revision of the
Business Roundtable’s statement
on the purpose of a corporation in August. Secondly, the sense of urgency
regarding the climate crisis has increased, evidenced and precipitated by an
upswing in media reports (guilty), extreme
weather events and political
“Climate change is
perceived more often now as an immediate crisis that needs immediate action
rather than a long-term issue that doesn’t really affect us day to day. Because
of that, I think we’re going to see more and more investors wanting to take
action to protect their portfolio against climate risk,” Hale says.
According to data from
Morgan Stanley’s Sustainable Signals report
last month, there is already an increase of investor interest in ESG issues.
The survey of 1,000 U.S. investors found that interest in sustainable investing
had jumped to 85% this year, with 49% of respondents “very” interested — up
from 75% and 19% respectively in 2017.
research reveals that roughly 50% of the 500 shareholder resolutions put forward
during the 2019 proxy period in the U.S. addressed ESG risks. Of the 177 proposals
that made it to vote, support in favor of them average 29%.
That seems low but is
a record high for the second year running and, according to Morningstar, is
enough to make directors take notice.
“Corporations are more
likely to adopt this world view if they have a base of support for it among
investors,” Hale says. Investors are voting with their wallets, too. According to Morningstar’s
assessment, fund flows in ESG-related stocks have surged to $13.5 billion so
far this year, up from what was a record year of $5.5 billion in flows last
While that value is just a fraction of the overall equities market, Bank
of America Merrill Lynch predicts
that inflows into ESG-type strategies over the next few decades could be
equivalent to the size of the S&P 500 today — an estimate the bank calls “conservative.”
It will pay to join the trend early.
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