Results from Callan’s ninth annual ESG Survey reveal a that a record 49% of investors are incorporating environmental, social, and governance (ESG) factors into investment decision-making—up 7% from last year and 22% more than in 2013.
But the report also shows ESG use has yet to make significant inroads when it comes to corporate defined contribution plans.
Just 13% of DC plans offered a dedicated ESG option, according to data from the proprietary Callan DC Index and the Callan DC Survey, and usage remains low with an average allocation of only 1.2%.
The report adds that there has been a steady increase in the share of plan sponsors that added an ESG option in the year prior to the publication of each DC Survey.
Callan’s annual survey on ESG principles is designed to better understand the views of institutional investors and the trends driving ESG adoption. This year’s survey reflects input from 114 U.S. institutional investors. Respondents included public and corporate DB and DC plans, as well as endowments and foundations, with assets under management ranging from small (under $500 million) to large (more than $20 billion).
Among the other key findings? Callan found that 40% of respondents not yet incorporating ESG were considering doing so, the highest share in the survey’s nine-year history and more than three times the level as recently as 2019. This brought the percentage of those either incorporating or thinking about incorporating ESG to 70% of all respondents in 2021.
The most frequently cited reason by respondents for incorporating ESG was to align their portfolio with their values (cited by 55%), followed closely by fiduciary responsibility (54%).
“With the proposed ESG and proxy voting rule from the U.S. Department of Labor, the pace of adoption could accelerate from here.”
Callan’s Tom Shingler
“We’re seeing the highest rate of ESG incorporation in the nine-year history of the survey, plus another 40% of investors considering it,” said Tom Shingler, senior vice president and leader of Callan’s ESG team. “This shows a strong secular trend toward ESG incorporation in the face of regulatory headwinds under the prior presidential administration. With the proposed ESG and proxy voting rule from the U.S. Department of Labor, the pace of adoption could accelerate from here.”
Despite the trend toward adoption, 51% of respondents to the Callan survey did not incorporate ESG into investment decision-making. Roughly the same share of respondents not incorporating ESG said its benefits are unproven or unclear.
Geography also plays a role. ESG adoption was highest by investors in the Northeast (63%) and lowest by those in the Central region (38%). West Coast states have 50% adoption, followed by the Southeast (42%) and Mountain states (40%).
SEE ALSO:
• ESG Investing Momentum Builds as Leaders Meet in Scotland
• New ESG Guidance from DOL Seeks to Reverse ‘Chilling Effect’ of Trump-Era Rules
• Playing Field Now Leveled to Include ESG: ARA’s Brian Graff At LNRS 2021