ESG Investing in Structured Finance

$11.6 trillion – or $1 of every $4 invested in the United States – was invested under ESG investment strategies.

Briefing

Environmental, Social and Corporate Governance, or ESG, investing has now hit the mainstream as a consideration – and increasingly a key driver – of investment approaches and analysis for individuals and institutions alike.  ESG investing has its roots in what began as ‘socially responsible’ investing in the 1960s, when investors began to screen their investment opportunities based on industry involvement such as tobacco production and sales or a company’s dealings in South Africa with respect to the apartheid regime.  Today, there is broad acceptance and interest in ESG investing with the existence of targeted mutual funds, indices, and there is also a growing focus on data availability and analysis by ratings agencies and analytics firms.

ESG FACTORS

Environmental

  • Climate change
  • Natural resources
  • Sustainability

Social

  • Diversity
  • Human rights
  • Consumer protections

Governance 

  • Corporate governance
  • Corporate behavior
  • Compensation structure

The above categories are high level and only scratch the surface of the ESG-relevant activities that investors – and issuers – may choose to focus on.

For our part, the Structured Finance Association has very recently launched an effort to assess how ESG investing and reporting can be applied and accessed in the securitization market.  As a jumping off point the Association has begun work on identifying a framework for reporting on ESG factors within the assets of ABCP vehicles at the conduit level.

  • According to Harvard Business Review, over $11.6 trillion of all professionally managed assets – $1 of every $4 invested in the United States – were under ESG investment strategies, a sharp 390% increase from 2010 when the amount was close to $3 trillion overall.

 

  • ESG is such an important consideration that major stock exchanges such as the New York Stock Exchange have introduced their own sustainability guidelines, such as the Principles for Responsible Investment.

Contact

Jennifer Wolfe

Director, ABS and Investor Policy

Jennifer.Wolfe@structuredfinance.org