Sustainable investing is a broad term for investment approaches that consider environmental, social and governance (ESG) factors and their impact. The category includes strategies that fall along a spectrum, with ESG Investing the most commonly used term.

Exhibit 1: The Sustainable Investing Spectrum -- OppenheimerFunds

ESG Investing: 3 Things to Know

1. Returns and Impact

ESG investing seeks to deliver attractive returns while evaluating, at every stage of the investment process, the long-term impact of a company’s business practices on society, the environment and the performance of the business itself.

 

2. Deeper Insight

The incorporation of non-financial data about ESG practices can offer deeper insight into company performance than traditional fundamental analysis alone. Today, a number of third-party firms are gathering and reporting ESG metrics from companies, and providing comprehensive ESG scoring.

 

3. Return Potential

According to a review of academic research on sustainable investing, high ESG ratings are correlated with a lower cost of capital, market-based outperformance, and accounting-based outperformance.1 Further, Harvard Business School found that “high sustainability” firms outperform “low sustainability” firms over the long-term, both in terms of stock market and accounting performance. They also exhibited lower volatility than the low sustainability group.2

 

 ESG-Focused Assets Are on the Rise

  • As of 2016, ESG-focused strategies represented $8.1 trillion of the $40.3 trillion in professionally managed assets in the United States.3
  • Of those ESG assets, $2.6 trillion were invested in retail-focused funds, up from $1.01 trillion in 2012 and $202 billion in 2007.

Today, there are approximately 500 ESG mutual funds and ETFs, totaling $1.72 trillion in assets.

Exhibit 2: Total U.S. Assets in ESG Portfolios -- OppenheimerFunds

 

 
  1. ^Source: “Sustainable Investing: Establishing Long-Term Value and Performance,” Deutsche Bank, June 2012.
  2. ^Source: Robert G. Eccles, Ioannis Ioannou & George Serafeim, “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance,” Harvard Business School, 2012.
  3. ^Source: US SIF Foundation’s Overview of Sustainable, Responsible and Impact Investing in 2016, available at http://www.ussif.org/trends.