The board members of Exxon Mobil Corp. convened in Dallas for the oil giant's annual meeting this spring amid a brewing battle over climate change. Just a year earlier, most shareholders agreed with the company's recommendation to reject a proposal calling for additional climate change disclosures. Moreover, the political winds were shifting with the new occupant of the White House signaling opposition to a global pact signed by his predecessor to reduce carbon emissions.

However, Exxon's directors faced a stunning reversal when they gathered on May 31, as 62% of investors, including mammoth asset managers like Vanguard Group Inc., went against the board's recommendation and voted for the same climate change disclosures that were rejected in 2016.

The very next day, President Donald Trump announced he was pulling the U.S. out of the Paris climate accord.

These two disparate headlines are indicative of broader trends in the environmental, social and governance, or ESG, landscape: Investors are increasingly demanding more information on issues like climate change. They are insisting that companies progress on ESG-related metrics, and they are not waiting for government to lead the charge.

ESG 'no longer a question'

The momentum for ESG investing, while slower in the U.S. than other parts of the world so far, is gaining. Worldwide, nearly 80% of asset managers and asset owners incorporate ESG factors into their decision-making, according to a survey conducted by BNP Paribas earlier this year.

And that focus is growing. Among asset owners incorporating ESG, 46% plan to invest at least half of their assets into funds that incorporate ESG by 2019, and 54% of asset managers plan to market at least half of their funds as ESG or responsible investment funds by 2019, the survey found. This marks a sizable increase from where things stand in 2017.

Sustainable and responsible investments in the U.S. are on the rise. They grew from $639 billion in 1995 to $8.723 trillion in 2016, according to data from the US SIF: The Forum for Sustainable and Responsible Investment, which advocates for sustainable investing practices. The total U.S.-domiciled assets under management using sustainable, responsible and impact investing strategies grew 33% from 2014 to 2016, meaning these assets account for more than one out of every five dollars under professional management, according to US SIF. This outpaced the growth in professionally managed assets in the U.S., which rose 9.5% during the same period.

Part of the growth stems from a growing body of evidence showing that ESG investments perform at least as well as those investments not tied to that criteria.

ETF.com identifies 62 socially responsible exchange-traded funds with $5.56 billion in AUM as of Nov. 30. The median 1-year total return for this group was 24.0%, slightly better than the 22.9% return for the S&P 500 over the same period.

Despite the significant growth, North American institutions remain behind peers in the Asia-Pacific region and Europe in incorporating ESG into their investment decision-making processes, the BNP Paribas survey found.

"ESG is no longer a question for us," writes Helena Viñes Fiestas, head of sustainability research at BNP Paribas Asset Management. "If you want to be a leading player in Europe, you need to focus on ESG."

Certain European countries are further along the ESG path than the U.S. in other ways too. France, for example, implemented a law in 2016 requiring enhanced carbon disclosures for listed companies and introducing carbon reporting requirements for institutional investors.

But stakeholders interviewed by S&P Global Market Intelligence suggest that the drive for more ESG disclosures and investment strategies will proceed with or without government support, because investors are increasingly demanding it.

The Paris accord is a case in point: Trump withdrew the U.S. from the international climate agreement, but some of the world's largest asset owners are proceeding with initiatives to tackle climate change on their own. The Principles for Responsible Investment, an ESG advocacy group, and other stakeholders are currently assembling an alliance of global investors to pressure the biggest corporate greenhouse gas emitters to cut emissions and address climate-change issues.

This Climate Action 100+ project will launch on Dec. 12 — the second anniversary of the drafting of the Paris climate agreement. The project has signed on investors representing trillions of dollars, according to Anne Simpson, sustainability investment director at the California Public Employees' Retirement System, or CalPERS, which helped form the alliance. CalPERS manages the largest public pension fund in the U.S. with a market value of about $344 billion.

No 'fleeting' priority

Large pension funds like CalPERS are a driving force in the conversation around ESG. CalPERS recently decided to make sustainable investment a strategy across its entire fund.

"We are planning to integrate consideration of environmental, social and governance factors across all of our asset classes in all of our portfolios for all of our managers, both internal and external," Simpson told S&P Global Market Intelligence in an interview.

The financial crisis shaved $70 billion in assets from the pension fund's balance sheet and sent it back to the drawing board in terms of crafting an investment strategy. "The world fell apart. So we have to think as we rebuild the fund, which has got to be stable to pay pensions for the best part of a century to nearly 2 million people," Simpson said. "This concept of sustainability is absolutely at the heart of what a pension fund is all about."

The interest from investors is flowing through to asset managers. In August, the chairman and CEO of investment manager Vanguard sent an open letter to directors of public companies worldwide. In it, he outlined the firm's growing emphasis on factors like board composition, compensation and the environment.

"[O]ur increased focus on climate risk and gender diversity are not fleeting priorities for Vanguard," F. William McNabb III warned. Vanguard has about $4.5 trillion in AUM.

In another indication of how the world's largest asset managers are placing increased emphasis on ESG, BlackRock Inc. — which has about $5.7 trillion in AUM — recently hired Brian Deese to run its sustainable investing group. Deese is a former climate change adviser to the Obama administration.

Courteney Keatinge, director of ESG research at proxy advisory firm Glass Lewis, called 2017 "a watershed year" for climate change-related ESG issues, as shareholder proposals on climate change received majority support at Exxon as well as oil company Occidental Petroleum Corp. and utility company PPL Corp.

"That was a really big deal — we hadn't seen a proposal receive majority support on climate change I think ever," Keatinge said in an interview.

There is a wide range of products that incorporate ESG into their investment strategies. State Street Global Advisors Inc. alone had 22 ESG products on the market at year-end 2016, which translated to more than $176 billion in ESG assets under management, or 7.1% of the firm's total $2.47 trillion of AUM.

An 'alphabet soup' of terminologies

Rakhi Kumar, head of ESG investments and asset stewardship at State Street Global Advisors, called ESG investing "a high-priority growth area" for the firm, stemming from increasing evidence that these factors impact long-term value.

While interest in ESG is high, Kumar said actual growth in investments has been slower. "It's not just us, but industrywide I've heard that," she said in an interview with S&P Global Market Intelligence.

This is in part because understanding of ESG is lacking. Kumar said SSGA is working to educate clients on the topic, and recently published a paper to help create a common approach to the "alphabet soup" of ESG terminology.

"Every client approaches ESG in a different way because it really does eventually align with what's of importance to the client," she said. "Some clients are very sophisticated and actually know what they want. But some clients are still exploring what it means."

Investors are not the only ones in need of education: In a CFA Institute survey of portfolio managers and research analysts earlier this year, just 31% of respondents said employees at their firm receive training on how to consider ESG issues in investment analysis and decisions. At the same time, 75% of respondents said they would like employees to receive training.

Corporations are also working to educate their investors and asset managers through direct engagement. Keatinge, from proxy advisory firm Glass Lewis, noted a sharp increase in companies doing targeted outreach to investors in recent years.

U.S. tech manufacturer Intel Corp., for example, has a formal plan in place to increase investor outreach that includes an annual roadshow on ESG issues, attendance at industry conferences, and one-on-one meetings with investors.

Despite the challenges around educating stakeholders, many believe ESG is poised to become more mainstream in the coming years amid a growing body of evidence suggesting a positive correlation between ESG factors and financial performance.

"Most people call ESG 'non-financial factors.' That's my pet peeve," Kumar said. "The reality is that ESG factors are low-probability, high-impact factors for us: The probability of something going wrong is really low, but when it does go wrong, the impact is very high."

A recent example making headlines: Governance failures at Wells Fargo & Co. allowed a toxic sales culture to fester, eventually exploding in a series of scandals that have severely damaged the bank's reputation and wiped billions of dollars off its market capitalization.

One major hindrance to identifying Wells-sized ESG risks before they blow up is the current lack of comparable data. This is a common complaint across stakeholders — corporations, asset owners and asset managers — and in the absence of good data, a "cottage industry" of questionnaires has emerged, said Jean Rogers, founder of the Sustainability Accounting Standards Board.

"Major asset managers like the BlackRocks, the State Streets, major owners like the pension funds, and then other third-party services, information brokers, rating agencies, index providers: Everybody has their questionnaire," Rogers told S&P Global Market Intelligence. In some cases companies are filling out hundreds of surveys each year, often on the same data points, or on information that is completely irrelevant to their company.

"Banks are getting the questionnaire on water use. Oil companies are getting questions on child labor," Rogers said. "It just wastes everyone's time. It's hard to even convey to you how much frustration there is on this questionnaire process."

Rogers launched the Sustainability Accounting Standards Board in 2011 to try and address this survey fatigue by developing standards to improve the effectiveness and comparability of corporate disclosure on material ESG factors in Securities and Exchange Commission filings. Since then, SASB has formed an investor advisory group that includes many of the largest U.S. asset owners and asset managers.

"What we're trying to do is focus on information that's material and get it into the hands of investors in the most cost-effective way," Rogers said. "At SASB we're meeting a really fundamental need of investors to benchmark, to compare and have data that they can integrate in their investment processes."

Aiming for outperformance

Even with patchy data, ESG investment strategies are becoming more sophisticated. The California State Teachers' Retirement System, or CalSTRS, is the second-largest U.S. public pension fund with $219.6 billion in assets at Oct. 31. It has been active in ESG for decades, but is seeing more attention and interest in markets now.

"One of the things that we are doing right now as we speak is looking at deploying capital to some of these new managers in ESG. There's so much more product out there, so much more opportunity for us to deploy assets to these strategies," CalSTRS Director of Corporate Governance Anne Sheehan said in an interview.

The pension fund just finished a procurement process through website eVestment to hire new managers that incorporate ESG into their investment decision-making process; it will soon announce the results. "We were very pleasantly surprised by the number of strategies and the number of quality strategies," said CalSTRS Portfolio Manager Brian Rice.

Though pension funds like CalSTRS and CalPERS are prioritizing sustainability, their main goal is to provide stable returns for investors.

"The focus of these managers is like any other: to outperform the benchmark," Rice said. "We want managers that can outperform the market and show that ESG integration is helping to drive that outperformance."

The large pension funds and asset managers at the forefront of ESG investment in the U.S. say this growing emphasis on sustainability issues is not a passing trend. Investor demand is driving a push for more and better data and more sophisticated ESG investment strategies. And while the U.S. is still struggling with a lack of comparable data and education on ESG, SASB is leading a push to create better and more relevant disclosures.

SSGA's Kumar urged stakeholders to put aside the politics and focus on the bottom line. "Think about it from a practical, financial perspective," she said. "And then you put that financial lens on and analyze an issue, and I think then you'll realize that ESG does matter."