ESG Investing Part 1: Driving Forces Behind Sustainable Investing

Unless you have avoided the news and markets completely, it’s hard to not hear discussions around sustainable investing. Also referred to as ESG investing, there has been an emergence in not only around how to live more sustainably but also how to invest. Over the past five years alone, ESG investment funds available has doubled. The way people think about sustainability is directly correlated to the way they invest. This is shown below in how sustainability funds within mutual funds/ETF’s have grown and are projected to grow.

Increased regulatory action and technological advances are two key factors in transitioning to a low-carbon economy. Each year companies that we rely on and use in our everyday life are joining the climate pledge to transition to cardon- neutral by 2040. The way in which investment firms are directing capital to companies best positioned for this shift has never been more important.

The term “Clean Tech” has become increasingly ubiquitous. Aside from your neighbor telling you about their brand new Tesla, less known clean tech companies are found in a variety of different sectors that are having a profound effect on investment returns.   

Investor sentiment is changing, and so is the way that investors are able to express their sustainability preferences.  Sustainable funds hit record highs in 2020 and it seems they are well positioned to keep growing in popularity. In January of last year, Larry Fink CEO of Blackrock, wrote about climate risk as an investment risk. Since that time the adoption of sustainability focused mutual funds and ETF’s has nearly doubled. This year he wrote about opportunity of a net zero transition and the opportunity for both present and future companies to not only do what’s right, but get rewarded along the way.

In my next post, I will take a look into what companies/industries are adopting sustainability practices and how they plan to fundamentally change moving forward.

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