Turning to the international side of things, a similar picture
emerges. Since its inception in April 2009, the MSCI EAFE
ESG Index has outperformed the traditional MSCI EAFE
Index, and that outperformance appears to be increasing
as of late (see Figure 4).
Clearly, ESG overlays have helped both domestic and
international performance, as both ESG indices have
outperformed their traditional counterparts since inception.
From Fringe to Mainstream
Further bolstering the case of outperformance in the space,
behemoth asset managers like PIMCO, MFS, and Schroders
have incorporated ESG-related issues into some of their
investment processes. There are those in the industry
with the naïve mindset that adopting ESG standards
leads to underperforming strategies, yet here are three
premier asset managers that have recognized the benefits.
PIMCO, for instance, recently adopted the United Nations
Principles for Responsible Investment (PRI), which holds
it to the following guidelines:
•
Incorporate ESG issues into investment analysis
and decision-making processes.
•
Be an active owner and incorporate ESG issues
into ownership policies and practices.
•
Seek appropriate disclosures on ESG issues by the
entities in which it invests.
•
Promote acceptance and implementation of the
principles within the investment industry.
•
Work to enhance effectiveness in implementing
the principles.
•
Report on activities and progress toward
implementing the principles.
Announcing that it would become a PRI signatory, PIMCO
stated, “This recognition forms the foundation of our
approach to investing responsibly. It is also consistent with
our conversations with a growing number of investors who
now regard ESG as a fundamental component of the way
they invest—a basic principle of their approach to investing.”
Just a Fad?
Given Commonwealth’s commitment to the space—we’ve
been focusing on it for more than three years within the
PPS Select SRI portfolios and for more than five years at
the broader firm level—the Asset Management team is
pleased that ESG investing is moving well beyond its core
base. Although something of a new concept in the domestic
retail arena, incorporating ESG factors has been an
integral part of the process for quite some time in Europe
and Australia, as well as among U.S. foundations and
endowments. There is a growing interest from (and actual
investments made by) pension funds, accredited investors,
and family offices that weren’t previously associated with
this style of investing.
As an analyst who attends many investment symposiums
across the industry, I can assure you that, five years ago, a
great way to get out of a stale conversation at a cocktail
party following all-day meetings was simply to mention
SRI or ESG investing. These days, that’s no longer the case.
There are some out there who call it a fad, but I’d say it’s
here to stay.
Peter Essele is a senior investment research analyst. He is
available at x9627 or at
.
Wealth Management
/ Investments & Research
commonwealth.com
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