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Sustainable Investing Trends Report: new methodology, new take on U.S ESG assets

The bi-annual Report on U.S. Sustainable Investing Trends (Forum for Sustainable and Responsible Investment) reflected important adjustments in the way that ESG is viewed in the context of the marketplace. By factoring in more stringent guidelines about what qualifies as an ESG fund, the Report showed $8.4T in U.S. sustainable investment assets – far afield from the $17T reported in 2020.

While ESG skeptics labeled this a “decline in assets,” it is actually a much-needed recategorization that supports transparency and authenticity in the fund arena. The Forum adjusted its methodology to account for “the rapid growth of the field and the lack of information from a growing number of institutions on the specific ESG criteria applied in firmwide ESG integration…[US SIF] required more granular information regarding the incorporation of ESG issues in order to be included in the tally of sustainable investment assets.”

The $8.4T total represents 13 percent of total U.S. assets under management, according to the Report.

Why the change?

2022 saw a sea change in the way the U.S. approached ESG data as an investment tool. Investor demand, a vast increase in relevant funds and questions about marketing practices pushed the SEC to formulate guardrails for what actually qualifies as ESG in the investment world.

At the same time, anti-ESG factions sounded the alarm, pointing to sustainable investing – and ESG as a tool in that mix – as an irresponsible financial thesis.

All these factors are leading to a narrower interpretation of ESG. The ultimate goal? Reduce confusion, safeguard investors, and eliminate concerns about ESG data being used in the investment process.

What should financial advisors do?

As always, know what you own, why you own it, and how to communicate with clients about your choices. There is certainly more to come in terms of regulatory guidelines and universal best practices, so stay tuned and stick with proven options (ESG and otherwise) that fit into your clients’ goal and financial plan.

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