Bear markets are defined as sustained periods of downward trending stock prices, often triggered by a 20% decline from near-term highs. Bear markets are often accompanied by an economic recession and high unemployment, but bear markets can also be great buying opportunities while prices are depressed.
to play in tackling urgent challenges such as climate change. But many of them also believe that pursuing a sustainability agenda runs counter to the wishes of their shareholders. Sure, some heads of large investment firms say they care about sustainability, but in practice, investors, portfolio managers, and sell-side analysts rarely engage corporate executives on environmental, social, and governance (ESG) issues. The impression among business leaders is that ESG just hasn’t gone mainstream in the investment community.
That perception is outdated. We recently interviewed 70 senior executives at 43 global institutional investing firms, including the world’s three biggest asset managers (BlackRock, Vanguard, and State Street) and giant asset owners such as the California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System (CalSTRS), and the government pension funds of Japan, Sweden, and the Netherlands. We know of no other research effort that involved so many senior leaders at so many of the largest investment firms. We found that ESG was almost universally top of mind for these executives.
Of course, investors have been voicing concerns about sustainability for several decades. But not until recently have they translated their words into action. Most of the investment leaders in our study described meaningful steps their firms are taking to integrate sustainability issues into their investing criteria. It was clear to us that corporate leaders will soon be held accountable by shareholders for ESG performance—if they aren’t already.
“ESG issues have become much more important for us as long-term investors,” Cyrus Taraporevala, president and CEO of State Street Global Advisors, told us, expressing a view echoed in many of our interviews. “We seek to analyze material issues such as climate risk, board quality, or cybersecurity in terms of how they impact financial value in a positive or a negative way. That’s the integrative approach we are increasingly taking for all of our investments.” (Note, Robert Eccles has consulted for State Street and several other institutions named in this article.)
The numbers back up the view that the capital markets are in the midst of a sea change. In 2006, when the UN-backed Principles for Responsible Investment (PRI) was launched, 63 investment companies (asset owners, asset managers, and service providers) with $6.5 trillion in assets under management (AUM) signed a commitment to incorporate ESG issues into their investment decisions. By April 2018, the number of signatories had grown to 1,715 and represented $81.7 trillion in AUM. According to a 2018 global survey by FTSE Russell, more than half of global asset owners are currently implementing or evaluating ESG considerations in their investment strategy.
Yet many corporate managers seem to be unaware of this new reality. In a recent survey by Bank of America Merrill Lynch, U.S. executives underestimated the percentage of their company’s shares held by firms employing sustainable investing strategies. The average estimate was 5%; the actual percentage is more like 25%.
