David Goodsell, executive director of the Durable Portfolio Construction Research Center at Natixis, pointed to the Volkswagen emissions scandal in 2015 as the “perfect example” why institutional investors should use ESG screens in investment policies as a way to manage risks in their portfolios, according to Asia Asset Management.
With a new generation of investors, the younger demographics are more apt to favor companies that address social and environmental responsibilities. These investors will also be prone invest in companies that follow ESG principles as a way to align investment goals with their individual values and philosophies.
“The desire to impact positive social change has resulted in investment inflows to the ESG category,” Allison added. “According to a poll conducted last year by Morgan Stanley, over 70% of all investors surveyed said they were interested in sustainable investing. In the increasingly important millennial category, that proportion was 84%.”
More recently, large pension funds have banded together to pressure industries into fundamental changes. For instance, some large state pensions have dropped coal and energy companies in favor of more environmentally friendly investments. Pension funds have also pushed for changes in boardrooms and targeted governance problems in individual companies.