Environmental Market Opportunities
Goldman Sachs Asset Management
Goldman Sachs Asset Management (GSAM), which provides institutional and individual investors with investment and advisory solutions, is committed to partnering with our clients to help them navigate today’s dynamic markets while seeking to deliver strong long-term and sustainable investment performance to help them achieve their investment objectives.
Building on our long history of incorporating environmental, social and governance (ESG) risk factors as a part of the traditional investment approach, we have made a significant commitment to further expand our ESG and impact investing capabilities. To this end, in 2015, GSAM acquired the assets of Imprint Capital Advisors LLC, a dedicated ESG and impact investing investment advisor with over 8 years of experience advising ESG and impact portfolios. Prior to acquisition, Imprint had advised on 125 investments across asset classes and worked with 11 of the 25 largest U.S. foundations, among other clients. As part of GSAM’s open architecture platform, the Alternative Investments and Manager Selection (AIMS) group, Imprint’s investing staff continues to work with clients to develop and manage ESG and impact investment programs and portfolios across themes and asset classes, focusing on investments made with the intention to potentially generate measurable social and environmental impact alongside a financial return.
GSAM has a combination of dedicated ESG and impact investing resources which are integrated into our broad investment management platform – we have 30 full-time ESG and impact investing professionals, as of March 2017, embedded into and leveraged by the broader global division. These professionals serve in a variety of roles across the division, including a dedicated investment team, which creates custom ESG and impact investing portfolios, and an ESG and impact investing client strategy team, which advises clients on their portfolios and strategy.
The foundation of our approach to ESG and impact investing is built on our core philosophy of serving our clients' investment goals and adhering to our fiduciary responsibility as an asset manager. We partner with our clients to provide a broad spectrum of customized solutions ranging from engineered portfolios that optimize for specific impact factors to custom portfolios of private impact investments. Given the breadth and diversity of both our clients’ objectives and our investment capabilities across our global platform, implementation by GSAM teams varies across asset classes and investment styles. As of January 31, 2018, GSAM supervises over $13.4B in assets in dedicated ESG and impact investing strategies on behalf of our clients, and an additional $75.7B in assets that are invested with ESG considerations.
Please see our ESG and Impact Investing page on GSAM.com for more information on how we work with clients. The following provides examples of ESG and impact investing solutions we have partnered with clients on that focus on environmental themes specifically:
Risk Aware, Low Emissions Equity Investing
Goldman Sachs Asset Management worked with the New York State Common Retirement Fund (CRF) in developing a Risk Aware, Low Emissions Equity Investment program. Working with GSAM, CRF committed $4 billion to this strategy within its U.S. equity portfolio to invest in companies that in aggregate will have greenhouse gas emissions that are up to 70 percent lower than that of CRF’s US large cap equity benchmark. The program will use a methodology developed by CRF and GSAM that seeks to reduce CRF's equity ownership of companies with higher greenhouse gas emissions while staying within a defined risk tolerance. This “Risk-Aware, Low-Emissions” methodology seeks to harness GSAM's history of incorporating ESG risk factors as part of an investment approach and the firm's portfolio construction expertise. Combining independent emissions data with a risk-aware methodology, the process aims to dynamically reduce the carbon emissions footprint of CRF’s portfolio with a high degree of efficiency per unit of relative risk to CRF’s chosen market-cap based index.
Please see the following link for the press release:
S&P Environmental & Socially Responsible Indices
In 2015, we expanded our ESG investment product offerings by working with S&P Dow Jones Indices to develop the S&P Environmental & Socially Responsible Indices. These Indices, which have been licensed to GSAM, are designed to offer investors enhanced exposure to environmental and socially responsible investing while seeking to maintain a risk and performance profile similar to their respective underlying indices. The constituents are selected using a transparent, rules-based methodology where stocks engaging in fossil-fuel-heavy industries or in the production and sale of tobacco, cluster bombs, landmines, nuclear and other military armaments are excluded. The eligible companies are assigned Environmental and Social dimension scores (E&S Scores) provided by RobecoSAM. 75% of the stocks with the highest ranking E&S Scores in each sector are selected for index membership.
Custom ESG Municipal Bond Portfolios
Our fixed income teams manage a variety of custom portfolios for clients that have a more targeted focus on ESG factors, including environmental themes. For dedicated ESG portfolios our US Municipal Fixed Income Team begins by targeting a higher allocation of a client’s municipal portfolio to sectors they expect to have a higher positive impact, such as renewable energy, energy efficiency, school districts, community colleges, hospitals, and arts and cultural institutions. They also might target, for instance, an issuance by a hospital to fund a new cancer center in a rural area with limited access to alternative treatment options, or the construction of a new elementary school in a challenged socio-economic area. They may also consider exclusions based on the revenue source, such as bonds funded by lottery revenue or a municipal utility issuance in a state that does not currently have a renewable energy requirement. Please see the following publication from the GSAM Municipal Fixed Income Team for more information on their customized ESG approach.1
Custom Private Market Impact Investing Portfolios
As part of the AIMS Group, AIMS Imprint is committed to working with clients to develop and manage custom ESG and impact investment programs and portfolios across impact themes and asset classes, focusing on investments made with the intention to potentially generate measurable social and environmental impact alongside a financial return. Selectively, AIMS Imprint works with external managers to design and/or seed new dedicated ESG and impact investing strategies to address market gaps. AIMS Imprint has more than 11 full-time investment professionals dedicated solely to ESG and impact investments. For custom ESG and impact portfolios, we produce an annual ESG and impact report that contains qualitative and quantitative information on ESG and impact across asset classes. In private markets, we track the focused list of metrics agreed upon during diligence and evaluate impact qualitatively based on an assessment by our investment team as well as illustrative impact case studies. We illustrate at the following link how we worked with a client to build a customized private market portfolio focused on having a positive environmental impact by addressing climate change, detoxifying the environment, and exercising responsible stewardship of natural resources.
Goldman Sachs Asset Management continues to develop innovative solutions to help our clients better implement ESG and impact considerations in a thoughtful, risk-managed way.
1 Targets are subject to change and are current as of the date of this presentation. Targets are objectives and do not provide any assurance as to future results. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.
THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE OR TO ANY PERSON TO WHOM IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO.
This material is provided for informational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.
There is no guarantee that these objectives will be met.
The S&P 500 Environmental & Socially Responsible Index and the S&P International Environmental & Socially Responsible Index are products of S&P Dow Jones Indices LLC (“SPDJI”), and have been licensed for use by Goldman Sachs Asset Management, L.P. and its affiliates. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Goldman Sachs Asset Management, L.P. Goldman Sachs Asset Management, L.P.’s investment strategies are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and none of such parties make any representation regarding the advisability of investing in such strategies/product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Environmental & Socially Responsible Index and the S&P International Environmental & Socially Responsible Index.
References to indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only and do not imply that the portfolio will achieve similar results. The index composition may not reflect the manner in which a portfolio is constructed. While an adviser seeks to design a portfolio which reflects appropriate risk and return features, portfolio characteristics may deviate from those of the benchmark.
Economic, Social, and Governance (“ESG”) strategies may take risks or eliminate exposures found in other strategies or broad market benchmarks that may cause performance to diverge from the performance of these other strategies or market benchmarks.
ESG strategies will be subject to the risks associated with their underlying investments’ asset classes. Further, the demand within certain markets or sectors that an ESG strategy targets may not develop as forecasted or may develop more slowly than anticipated.
The business of investing in assets such as energy, real assets, infrastructure, and commodities assets is highly competitive and will be subject to risks associated with market changes in interest rates as well as certain risks related to adverse economic or regulatory occurrences, environmental liabilities, force majeure events, and high interest costs in connection with capital construction programs, among others.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security.
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material has been prepared by GSAM and is not a product of Goldman Sachs Global Investment Research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and GSAM has no obligation to provide any updates or changes.
The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.
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