Imagine this: you are a graduate student enrolled in a one-of-kind course on impact investment funds while debates are ramping up across the country on whether financial institutions should report on socially and environmentally responsible investing¹. At the same time, you are excelling in a course advising companies on integrating social sustainability strategies across people, planet, and profit. Your previous experience shines brightly through your coursework, and a professor recommends you support the Dean of the Kogod School of Business, David Marchick, with a presentation on how sustainability investing is the path forward. No pressure, right?

The urgency to address the climate crisis is changing how the world conducts business and how customers, employees, and shareholders engage with companies. Climate change poses several financial risks, and investors are starting to place more pressure on businesses to act. Companies are considering issues such as economic and environmental sustainability, fair labor practices, and social justice, among many others. ESG has risen to the mainstream as the future regulatory landscape may require companies to report on ESG and climate risks. The elephant in the room is how can businesses appeal to diverse shareholder needs, such as strong financial performance and growth versus measures to reduce emissions and advocate for a healthier, prosperous planet for all?²

What if you can make the case for both?

Bhagyashree More, a graduate student at the Kogod School of Business, rose to the challenge to make the business case for sustainability. I met up with More after our sustainability accounting class to learn more about her experience navigating the jungle of ESG investing.

Originally from Mumbai, India, More moved to Washington, DC, to pursue an MS in Sustainability Management at American University. More, who previously worked for consulting firms like Ernst & Young and KPMG on risk, governance, and compliance, has the perfect mix of background and skills to embark on researching how investors can measure company contributions across the triple bottom line and utilize this information to make key financial decisions.

What is ESG investing?

Leading provider, MSCI, defines ESG investing as “the consideration of environmental, social and governance factors alongside financial factors in the investment decision-making process.³”

More than 90 percent of S&P 500 companies publish a form of ESG reports in some form, including approximately 70 percent of Russell 1000 companies.⁴

Isabela Barriga (IB): You have such an impressive background! Tell me more about the ESG research that you put together for the Dean.

Bhagyashree More (BM): I was involved in putting a slide deck together for a large global asset management firm to showcase how sustainability investments are performing. I dived into funds and indexes to better understand how the market is doing. In collaboration with the asset management team, we examined the overall asset management in the entire industry, and we found an upward trend in sustainable fund flows as the fastest-growing asset classes in the United States, Europe, and the rest of the world. This is a global snapshot of how the asset management industry is moving towards investments in sustainability.

IB: Can you walk me through the asset classes that you analyzed?

BM: We broke it down by assets and sectors, including sustainable debt such as green bonds, social bonds, green loans, and more. These are sustainability loans and bonds that investors contribute to green projects and receive financial returns. We’re seeing growth in the environmental sector, particularly in renewable energy, but the social sector could use more attention.

IB: What is the expected growth in overall global assets, and who is leading this?

BM: New sustainable funds are being launched every quarter. Europe is leading this, followed by the United States and then the rest of the world. We looked at the overall assets management industry and divided it into standard funds versus ESG funds. Our data shows that by 2025, the ESG-mandated assets will outperform the non-ESG-mandated assets. There are already some ESG funds that are outperforming non-ESG funds. We mapped the performance of 500 ESG versus S&P 500 over the years in the market, and most data shows a correlation with the overall market – we already see 500 ESG funds outperforming S&P 500 Index funds.

IB: How did shareholders from the board meeting use this information for decision-making?

BM: With the current regulatory landscape, the SEC is proposing additional specific ESG disclosure requirements, such as disclosure of their carbon footprint. These regulations will be a huge gamechanger – and it has sparked controversy in the investment management industry.