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Institutional Investors Innovate ESG Usage

ESG investing principals are being implemented by institutional investors in a rich variety of ways, with an increasing emphasis on the “social” and “governance” portion of ESG. 

By John Manganaro editors@plansponsor.com | November 08, 2016
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The topic of environmental, social and governance (ESG)-aware investing is often associated with left-leaning political sensibilities—in no small part because many of the ESG-labeled products one comes across are aimed at reducing an investor’s carbon footprint or environmental impact.

But a new report, “Tipping Points 2016,” published by the Investor Responsibility Research Center Institute (IRRCI), finds that ESG investing principals are being implemented by institutional investors in a rich variety of ways, with an increasing emphasis on the “social” and “governance” portion of ESG. In fact, the study indicates that investors are “intentionally attempting to influence systems-level risk factors previously ignored as beyond the impact-ability of institutional investors,” going far beyond simply reducing carbon output.

Some investors, for example, are thinking deeply about how the social interconnectivity of the world has dramatically impacted market correlations and the competitive landscape in which all for-profit enterprises operate. “Previously, investors could find ways to insulate their portfolios from certain global events,” the report notes. “Today, even seemingly local events can immediately and adversely affect all portfolios.”

Other investors, it could be said, are actually hedging the possibility of negative environmental impacts from climate change within their portfolios, positioning themselves to be ready to take advantage of new solutions that will undoubtedly be needed in a climate-stressed future. The report points to PGGM, a Dutch pension fund manager, which has allocated a multi-billion dollar portion of its assets to what it describes as a “solutions” portfolio focused on responding to four issues: climate change, food scarcity, health care cost inflation and water scarcity.

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