- Nearly $10bn of client investment now ESG/SRI related
- Improved returns and socio-political changes driving growth
(LONDON, APRIL 2018) The value of the broad universe of Environmental, Social and Governance (‘ESG’) and Sustainability themed investments* has more than doubled in the last five years amongst its client base, according to Cambridge Associates, the global investment firm.
Cambridge Associates, which advises some of the world’s largest pension funds, endowments, foundations and family offices, has seen investment from clients into ESG funds increase over 135% in the last five years, up from $4bn in 2012 to $9.5bn in 2017**.
Cambridge Associates explains that there are three key drivers of the growth in ESG-related investment:
- Clear economic basis behind many ESG themes: for example, the cost of renewable power is increasingly cheaper than fossil fuel based power generation without any need for subsidies or incentives.
- Changing socio-political environment: there has been a relatively quick succession of government policy announcements that is serving to drive new interest in ESG investments. For example, the UK and France have said they will ban petrol and diesel cars from 2040 and China has promised to introduce similar bans.
- Improvement in performance: where investing in ESG-related funds may previously have been seen to be at the expense of performance, there is a strong body of evidence that these funds are achieving good returns. For example, the live inception of the MSCI Emerging Markets ESG Leaders index in June 2013 has outperformed the parent MSCI Emerging Markets index by over 3% on an annualized basis, as of February 28, 2018. The ESG EM index has yet to have a down year in relation to its non-ESG counterpart.
- Increased choice: a widening choice of ESG-related funds on the market – driven by investor demand itself – means that investors can be more selective in their approach in order to achieve better returns.
Almost a quarter of Cambridge Associates’ clients have made a serious enquiry about ESG investments over the last 5 years. Of those already with active ESG investments in their portfolios, over 10% are fully committed to ESG, with most or all investment decisions considered through an ESG lens.
Recent guidelines from the Pensions Regulator (TPR) could also cause increased demand for ESG-related funds. In these guidelines, the Regulator requires that trustees of defined benefit schemes should take ESG factors into account when investing funds, if they are financially significant.
Cambridge Associates recently became a signatory to an open letter, backing the TPR’s guidelines, coordinated by the Association of Member Nominated Trustees (AMNT) – a trade group of trustees responsible for £650bn of assets – that pledges to help pension funds take account of climate change and other responsible investment issues.
Chris Varco, Investment Managing Director at Cambridge Associates and ESG specialist, says: “Socially responsible investing is increasingly being seen as synonymous with good returns.”
Following a private screening of Al Gore’s “An Inconvenient Sequel: Truth to Power” to investors representing $110bn in AuA, Varco said: “In the past, ESG-related investment may have been considered as sacrificing financial performance in return for having a positive social impact. However, the recent record of many ESG funds and the growing trend for such investment shows otherwise.”
“At Cambridge Associates, we are finding that our ESG expertise and track-record increasingly interests pension funds, private clients, endowments, foundations and other institutional investors across Europe. They want to make sure they get this right – both from a returns perspective and an ethical standpoint.”
Cambridge Associates says that in a survey of more than 150 clients, a third were currently involved in ESG-related investing. Of those, almost two thirds said they would increase their ESG-related investments over the next five years.
*These are funds are those that focus on ESG (environmental, social, and governmental) factors, impact investment, SRI (socially responsible investing), and sustainable investing.
**Year end 31st December
About Cambridge Associates
Cambridge Associates is a leading global investment firm. We aim to help endowments & foundations, pension plans, and private clients implement and manage custom investment portfolios that generate outperformance so they can maximize their impact on the world. Working alongside its early clients, among them leading university endowments, the firm pioneered the strategy of high-equity orientation and broad diversification, which since the 1980s has been a primary driver of performance for institutional investors. Cambridge Associates delivers a range of portfolio management services, including outsourced CIO, non-discretionary portfolio management, staff extension, and asset class mandates.
Cambridge Associates maintains offices in Boston; Arlington, VA; Beijing; Dallas; London; Menlo Park, CA; New York; San Francisco; Singapore; Sydney; and Toronto. Cambridge Associates consists of five global investment consulting affiliates that are all under common ownership and control. For more information, please visit www.cambridgeassociates.com