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3 Sustainable Investing Trends for 2018

Jon Hale, Ph.D., CFA
Jeremy Glaser

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. I'm joined today by Jon Hale. He is our director of sustainable investing research. We are going to look at three trends that are going to shape ESG and sustainable investing in 2018.

Jon, thanks for joining me.

Jon Hale: My pleasure.

Glaser: You think the first big trend is going to be that climate risk is going to be top of mind. Why do you think this will be so important this year?

Hale: I think more and more investors are recognizing that climate risk is something that they want to know more about from companies. We just saw last week a group of investors, they are calling themselves, Climate Action 100, say that next year they are going to focus on the 100 companies with the largest carbon footprint globally. In their engagement with those companies get them to agree to disclose in more detail what they think the risks are from climate change to their business.

I think this is indicative of a heightened investor awareness, and there's already a lot of movement in this area. Just also last week Exxon filed with the SEC saying they would enhance their climate-related disclose next year. That of course was in response to a shareholder vote this past May in which 63% of Exxon shareholders voted to encourage the company to do that. I think we are going to see more of that this coming year.

Glaser: That Exxon vote is a good lead into the second trend which is more engagement on ESG--environmental, social, and governance--issues. That was a big one seeing some of the passive providers really push Exxon there. We're going to see more of that in 2018 do you think?

Hale: Yeah, I think so. I think investor stewardship is something we definitely are going to see more of in 2018 partly because of the climate risk disclosure. There's also the issue of gender diversity on boards and in executive suites of companies. That's an interesting issue as well. I think what we are going to see--and Blackrock, Vanguard and State Street led the way this year--we are going to see asset managers doing more of this because, I think, their investors are interested in what they are doing in this area and think that as some of the largest shareholders of most major companies in the world that asset managers can make a difference in how some of these companies deal with some of these sustainability issues like climate change.

Glaser: Finally, you think that financial advisors will play a bigger role in sustainability in the coming year?

Hale: It's something we've sort of been waiting for. You have got, I think, several things in place that to me indicate that I would expect to see more financial advisors incorporating sustainable investing into their practice this year.

Number one, we have had consistently a number of investor surveys that have now spanned the last three, four, five years saying, yes, a lot of investors are interested in this kind of approach to investing. A lot of younger investors, millennials, women, but this year, there's at least two surveys that also talked about baby boomers and saying, you know, there's just about as much interest among baby boomers in this as it turns as there is among younger folks. I think that's one thing, that investor interest has stayed high and remained high.

Secondly, there is a lot more products out there. Just in the last two years there's been over 70 new mutual funds and ETFs that do sustainable investing that have been launched. There's more choices out there for advisors.

Finally, advisors--and there's also more tools, I will say. We've got the Morningstar Globe Rating that I think it's 2 years old now. We are going to have some more tools coming out next year that will help advisors. There's more uptake in that area as well. A lot of advisors are going to be saying, OK, we have the tools; we have the choices; we know there's investor interest; now, I'm convinced, time to incorporate that into my practice.

Glaser: Jon, thanks for joining me today.

Hale: My pleasure.

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.