State Street Corporation (NYSE: STT), one of the world's leading providers of financial services to institutional investors, has released a new Vision Focus report on sustainable investing. Entitled “Sustainable Investing: Positioning for Long-Term Success,” the report leverages new research by State Street Global Advisors (SSgA), the investment management business of State Street, to examine the growing impact of environmental, social and governance (ESG) concerns on the investment decisions of institutional investors.
World population growth, climate change and a range of other catalysts are transforming sustainability into “a material issue for companies and investors alike,” the report states.
“With global business and investing moving toward a more sustainable model, institutional investors need to position themselves for a future that may look dramatically different from the past,” said Chris McKnett, vice president of ESG investing at SSgA. “By taking steps to align themselves with this trend now, institutional investors may be better positioned to achieve long-term goals.”
Once viewed as a marginal investing “fad,” ESG investing is gaining momentum as global macro-trends increasingly point to a “sustainability crisis” taking place around the world, the report states. “Many investors have called for more opportunities to incorporate ESG factors into their portfolios, prompting investment managers to enhance their product and service offerings.”
The report is a bridge to research findings outlined in a new SSgA study, scheduled to be released later this year. The 2010 study is an update to research conducted by SSgA in 2008. While the 2008 study suggested a growing importance for ESG-related investment considerations, the new study goes a step further by examining ESG in bear market periods, and found that, in general, high-scoring ESG companies suffered less during the 2008-2009 downturn.
In addition, the new research found that the magnitude of protection enjoyed by companies with strong ESG practices increased at the same time as the largest market declines occurred.
According to the Vision report, the global financial crisis contributed to greater awareness of ESG issues by spotlighting the need for “more stringent corporate governance and disclosure requirements to help protect the interests of investors.”
“The new emphasis on sustainability is changing the rules of the institutional investment world,” continued McKnett. “As ESG factors are increasingly mandated by investors, those companies with favorable ESG ratings are likely to become the preferred holdings.”
The Vision report reviews the development of ESG investing from the early focus on exclusionary screening of companies whose products or services were deemed inconsistent with an investor’s values, to today’s more proactive approach of incorporating ESG factors into the investment decision-making process. With more in-depth analysis of ESG data and ratings, the report states, “Today’s sustainable investor is intent on identifying companies expected to outperform over the long term based on their practices of embracing the concept of sustainability in the operation and management of their enterprises.”
State Street’s Vision Series addresses key trends and developments impacting the financial services industry. Previous reports have focused on pensions, exchange traded funds, asset allocation and sovereign wealth funds. To download a copy of this Vision Focus report or others in State Street’s Vision series of in-depth reports, please visit www.statestreet.com/vision.
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