Introduction

Incorporating long-term environmental, social, and governance (ESG) related concerns into the investment decision-making process is an important way for institutions to optimize returns, reduce risks, and identify opportunities for future growth, all while aligning portfolios with broader goals of society.

Regretfully, many regulators, legal advisors, and consultants who work with large asset allocators like sovereign wealth funds (SWF) and government pension funds (GPF), continue to recommend a false choice: either optimizing returns or considering ESG issues. This remains the case despite academic study after study showing that companies with higher scores on material ESG metrics generate higher financial and economic returns over time. It also seems to disregard mounting pressure from stakeholders and beneficiaries who would like to see their savings invested in a way that reflects their ethical and moral preferences.

General practices are evolving and, increasingly, institutional investors are adding non-traditional environmental and social factors to their portfolios. In particular, leaders in the SWF and GPF communities are seeking to make an impact in fields related to the UN Sustainable Development Goals (SDG) such as climate change, gender diversity, sustainable infrastructure, and universal health care, while delivering financial returns for their constituents. Despite these efforts, however, the amount of capital that is deployed responsibly and sustainably remains far below its potential.

For stewards of long-term capital, like sovereign wealth and government pension funds, the question is not can they afford to invest responsibly but rather: Can they afford not to? The world is shifting toward more socially conscious and environmentally friendly investing practices. The Responsible Asset Allocator Initiative supports this trend, monitoring the progress of the world’s largest investors toward responsible investing and providing a benchmark for future growth.

Update at 4:15pm, April 22, 2019: This report has been changed to correct the name of one asset allocator from ”OPSEU Trust (OPTrust)” to “OPTrust.”