Sustainable Finance/ESG

Environmental, Social, and Governance (ESG) refers to a broad range of environmental, social, and governance criteria on which socially conscious investors measure the sustainability and societal impact of their potential investments in a company.

Environmental is how a company performs as a steward of nature; social is how they manage relationships with the communities where they operate; and governance is their leadership, executive pay, shareholder rights and more.

As a result, ESG standards are increasingly shaping the way investors choose to engage with companies and thus how companies do business around the world. Some asset managers have offered ESG products for years.  But, as investors have shown an interest in putting their money where their values are, brokerage firms and mutual fund companies have significantly increased their offerings of exchange-traded funds (ETFs) and other financial products that follow ESG criteria.

According to a report released by the Global Sustainable Investment Alliance on April 1, the level of global sustainable investments reached a new peak of $31 trillion at the beginning of 2018, a 34% increase from 2016, with the United States remaining one of the largest markets for sustainable investments in 2018, with $12 trillion in assets under management.

Additionally, ESG advocacy continues to be a top priority for the asset management industry globally, from a regulatory perspective. SIFMA AMG is working with European regulators and policymakers in Brussels on an ESG taxonomy that will ensure all interested parties are speaking the same language and will guard against so-called “greenwashing,” conveying a false impression or providing misleading information about how a company’s products are more environmentally sound.

However, the industry still harbors concerns that regulators may go too far in pushing investors toward investments deemed sustainable and/or penalizing investment advisers for following client mandates, if they are not deemed to be green. SIFMA will continue to work on educational efforts with lawmakers and discussions regarding the impact of European ESG principles in the U.S.

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