Misperceptions and Trends in ESG Investing

Mercer Responsible Investment expert Alex Bernhardt explains why organizations should embrace ESG investment strategies.

As organizations and governments worldwide are beginning to seriously address the issues of climate change, ESG investment strategies are becoming the norm for many institutional investors. But as Mercer US Responsible Investments Leader Alex Bernhardt explains, there are still misperceptions that follow responsible investing, particularly in the US.

 “The most common misperception is that ESG investing is negative screening only,” says Alex. “That you have to exclude stocks from your public equity portfolio, for instance, in order to invest sustainably and responsibly. That is not true.”

Today there are many different methods of investing sustainably, including positive screening, and they all have different impacts on your portfolio. At the same time, Alex stresses that ESG investing is consistent with the concept of fiduciary duty.

“There’s a persistent myth in the United States in particular that ESG investing is really just negative screening, and that by definition limits your investment universe and therefore has a negative performance impact,” Alex says.

“But the myth is just that—it’s a myth.”

As more adoption of other approaches to ESG investment and their positive risk-to-return outcomes become apparent, there will be more adoption of responsible investment activities in the US, Mercer’s experts predict.

The trends are revealing themselves globally. One of the most interesting, Alex notes, is the growth in UNPRI signatories.

“We’re up to $59 trillion in assets under management signed up to the UN PRI [the United Nations-supported Principles for Responsible investment]—about half of global investment management industry—declaring support for UN PRI’s 6 principles,” Alex notes.

There is more usage of various ESG investing techniques in all sorts of different asset classes, not just public equity, which has been the focus.  Now asset classes like fixed income and alternatives are picking up as an ESG approach to investing.

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