Environmental, social, and governance (ESG) investing has endured significant criticism over the past couple of years. Some market participants may be pondering the future of this investment style, and whether or not it’s on borrowed time.
Fortunately, the long-term outlook for ESG investing remains bright and in what could be a positive for exchange traded funds such as the Calvert US Large-Cap Core Responsible Index ETF (CVLC), some important market participants remain committed to ESG. Those include public pension plans, which in aggregate, manage trillions of dollars for state and municipal workers.
The California Public Employees Retirement System (CalPERS) highlights the sway public pensions have when it comes investing and ESG commitments. For its fiscal year ending June 30, CalPERS had nearly $463 billion in assets under management, making it the largest public pension plan in the U.S.
When players like CalPERS express ESG commitment, and they are, that could be a positive signal to advisors and retail investors that there’s long-term utility in ETFs such as CVLC.
Confirmation of Pensions’ ESG Investing Commitment
Many investors like following the strategies of professionals. This underscores the potential for broader adoption of ETFs such as CVLC. Pension plans’ embrace of ESG certainly fits that bill. In fact, data confirm pension investors are more ESG-inclined than other asset allocators.
“Our analysis of state and local public pension funds from across the United States found that, as a group, their 88% support rate for key ESG resolutions was considerably higher than general shareholders’ 56%,” noted Morningstar analyst Janet Yang Rohr. “What’s more, as seen in the exhibit below, public pensions supported key ESG resolutions at a higher rate than the 74% for sustainable funds, which use ESG criteria to evaluate investments or assess their societal impact and pursue sustainability-related themes.”
Interestingly, pension plans aren’t overtly declaring that they’re ESG investors. This could be a smart idea; the current environment is hostile toward ESG strategies. Still, these investors are voting along ESG lines in proxy votes and that’s what matters.
On a related note, politics has permeated ESG investing. If that situation abates over time, it could drive broader adoption of funds such as CVLC.
“The differences in voting habits as well as the changes from year to year strongly suggest that the political spotlight on ESG investing has had some chilling effect on public pension funds’ support of ESG resolutions. There remains broader agreement among investment professionals on the merits of sustainable investing. This is borne out by the relatively high level of support for the key ESG resolutions,” concluded Rohr.
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