What the new Callan survey reveals about ESG adoption in US

Callan recently released its 2019 ESG Survey. I have previously written about their prior surveys. Here are the key takeaways (the findings are from the survey, the analysis and commentary are mine):

Respondents (89) were U.S.-based institutional investors, including governmental plans, ERISA plans, endowments and foundations. In other words, this is not an ERISA-specific survey, but nevertheless picks up trends in the DC plan space.
Rather strikingly, 62% of respondents that utilized ESG have been doing so for just the past 5 years. This translates to a 91% increase in respondents that have incorporated ESG factors into investment decisions since 2013.
Implementation is the most popular ESG approach. Here is my definition of this technique. I expect this trend to continue as the data linking ESG factors to investment performance continues to evolve.
Significant uptick in adoption by DB and DC plans (both governmental and ERISA), though their overall numbers continue to lag other investor types. 36% of DC plans offer an ESG option. Only 18% have added a themed fund into the lineup (meaning, DOL Field Assistance Bulletin 2018-01’s discussion around themed funds, particularly the questions raised over whether such funds could serve as QDIAs, may be muted).
Noticeable differences between early adopters (before 2015) and recent adopters (2015-2019) in how they have implemented ESG:
- 64% of the earlies added language to an IPS vs. 39% for the recents (perhaps some of this reflects 2018 DOL guidance that ESG-specific language in an IPS is not necessary?)
- 57% of the earlies communicated to investment managers that ESG is important vs. 35% of the recents
- 21% of the earlies utilized shareholder engagement/proxy voting as a method to address ESG vs 13% for the recents (regulatory headwinds could have dented this number a bit, as well)
- 14% of the earlies added an ESG option to the DC plan lineup vs. 9% of the recents
68% of respondents do not have a distinct ESG allocation apart from its traditional portfolio (this make sense considering integration, which us “under the hood,” is gaining traction).
Of recent adopters, 22% use a screening process and 17% have divested.
Reasons for incorporating ESG include:
- Fiduciary responsibility (50% earlies, 57% recents)
- Improved risk profile (29% earlies vs. 43% recents)
- To make an impact (29% earlies vs. 17% recents)
- Higher long-term returns (29% earlies vs. 17% recents)
Reasons against ESG incorporation include:
- Not considering factors that are “not purely financial” in investment decision-making
- Limited participant interest
- Perceived political activism
- Fiduciary duty concerns
- Perceived as pursuing a moral agenda
- Not legally required
Respondents have interest in seeing greater ESG products for both private equity and real estate, among others.

Blog Authors

Sara P. Crovitz

Sara Crovitz, most recently Deputy Chief Counsel and Associate Director of the U.S. Securities and Exchange Commission’s Division of Investment Management, provides counsel on all aspects of investment company and investment adviser regulation. She worked at the SEC for 21 years, including 17 years in the Division of Investment Management focusing on issues under the Investment Company and Investment Advisers Acts of 1940. While in the Division, Sara supervised the provision of significant legal guidance to the investment management industry through no-action and interpretive letters, exemptive applications, IM guidance updates and other written and oral means.

William T. Mandia

William Mandia represents financial institutions and insurers in complex commercial and class action litigation. He regularly defends and advises life insurers, intermediaries, banks, broker-dealers, investment advisers, and other financial services providers in connection with sales practices claims arising from a wide range of financial and life insurance products, including, but not limited to, claims for alleged breach of fiduciary duty, fraud, and violations of state consumer protection laws.

Peter M. Hong

Peter Hong uses his many years of service at the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to guide clients through the various regulatory requirements involved in the offer of financial services and products. His practice includes the registration and regulation of investment advisers, broker-dealers, commodity trading advisers, commodity pool operators, and introducing brokers under federal and state laws, as well as the formation and ongoing compliance obligations of registered and private investment companies.