Earlier this year, fees ranging from $530 to $10,650 became mandatory rather than voluntary. Beginning in 2012, signatories will be required to fill out end-of-year ESG progress reports, which will be made public.
In the latest "UN PRI Progress Report," Dr. James Gifford, executive director of the initiative, notes that "while there has been strong progress, there is still a long way to go." Most institutional investors, he observes, still do not include ESG criteria and requirements in their contracts with investment managers. While many firms have a written ESG policy, far fewer have formalized processes to integrate them across all their portfolios. And small funds with under $2 billion in assets, which represent nearly one-third of all signatories, often do not have the resources to integrate ESG effectively across all asset classes.
Christopher Davis of Ceres says the future of ESG among mainstream investment managers lies in the hands of institutional investors and others with the power to influence them.
"Asset managers will do what their clients want, so investors need to make it clear that ESG criteria is a priority for them. Analysts should also be asking more about environmental and social practices in quarterly conference calls. And asset managers should present it as a routine offering rather than a sideline."
A 2009 survey by the Social Investment Forum supports Davis' latter observation. It found that while 90% of investment consultants see continued growth in interest in ESG by clients, only 22% of them raise the issue in meetings.
Another report from the Business for Social Responsibility (BSR) concludes that while some investors are integrating ESG factors across their entire portfolio, most view it as a niche best served by specialized products and services. The majority of growth in firmwide integration is being driven by global pension funds, especially in Europe.
"Throughout the investment community, there is room for improvement in raising awareness of non-financial factors that can have a huge impact on a company's financial well-being," says Davis. "We're seeing incremental progress in ESG integration by mainstream managers. But we'd like to see much more."