news
Interest in ESG products moves away from negative screening
30 January 2020
eVestment Market Lens documents highlight a growing interest among investors in moving beyond negative screening towards more impactful ESG actions like shareholder engagement and proxy voting.

Though coal divestment has gained traction, most investors still deem broad-based divestment from fossil fuels too risky and ultimately irresponsible. The New York State Common Retirement Fund addressed its position vis-à-vis fossil fuel divestment in its Climate Action Plan 2019 : “divestment is a last resort and should be reserved for specific investments (and not the fossil fuel industry generally). At this time, broad-based fossil fuel divestment by the CRF is not consistent with the Comptroller’s fiduciary duty.”

An Update on Stewardship & Sustainability from City of Austin ERS from August again echoes this hesitant sentiment: citing mixed evidence on the impact of ESG-related investment restrictions on returns, the plan’s staff argued that the “fiduciary and legal standard required for [fossil fuel-related] exclusions has not been met, evidence suggests significant costs and limited benefit from such a policy, [and] alignment is lacking with our mission of providing secure retirement benefits.

While most institutional investors are not ready to leave behind the fossil fuel industry entirely, many are still taking steps to prepare for a potentially fossil fuel-free future. ESG investing has its roots in negative screening, but investors and consultants now recognize negative screening as only one tool in the ESG toolkit. New Jersey’s Division “believes the best financial outcomes for the Pension Fund regarding the business risks associated with climate change will result from engagement,” such as “shareholder initiatives that promote transparency and require the measurement of business risks associated with climate change.”

Similarly, Austin’s staff “recommend to focus on governance, engagement and thematic tilts” and to “consider more active ownership stance” rather than to focus solely on negative screening. Shareholder engagement is on the rise.

Sources

  • New York State Common, Staff, “Climate Action Plan 2019.” (2019, June 30). Retrieved from eVestment Market Lens.
  • New Jersey Division of Investment, Staff, “Asset Allocation Recommendation.” (2019, May 29). Retrieved from eVestment Market Lens.
  • Austin City ERS, Staff, “Update of Stewardship & Accountability.” (2019, August 16). Retrieved from eVestment Market Lens.
Related News Article
Markets enter the eye of the coronavirus storm