Part 2: Changing the Game

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Over the past decade, many things have changed, and new trends have emerged. From the technology that we use in our everyday lives, social reform, and most recently getting back to norms in a post-pandemic world. When it comes to investing, how and where companies allocate their funds is under the microscope like never before. A growing trend that has come into focus is ESG investing and is reshaping the fundamentals of how companies operate. For some, this may even mean overhauling their board room to ensure that they are aligned with the push to be more environmentally friendly.  

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Some of the largest companies worldwide have come together to push for sustainability and reduce their companies’ harmful impact on the environment. These companies are now making sure that they think about the environment in the same way they think about their employees, customers, and shareholders. Companies that have signed the United Nations Principles for Responsible Investment are worth a combined $100 Trillion of assets under management. Signing the agreement to become more mindful when it comes to sustainability is the first step in a long process. How to measure what steps are being taken to move towards this goal is not quite as clear.  

To hold companies more accountable, there has been the idea of creating standardized metrics for companies to follow on how to report their progress towards a net zero carbon footprint. Several companies have laid out plans to cut greenhouse gas emissions to zero, but timelines vary across various industries. This is a result of many factors, with one of them being the consumer and changing preferences. With consumers gravitating towards plant-based foods and electric vehicles, many companies don’t have a choice if they want to remain competitive. As millennials become a larger percentage of the workforce, companies must figure out what they value. Millennials value work that creates a positive impact and are motivated by employers that understand this change. This change reflects that work now goes beyond simply growing profits. Although consumers and employees have a tangible impact on how businesses operate, shareholders of these companies hold a lot of power. As the push towards ESG continues, these companies’ shareholders make sure that they see a sustained effort to create a positive impact. 

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As shown above, there is now a distinct correlation between companies with a ESG focus and increased share performance. The prices of companies with high ESG profiles also have shown that they are more resilient during market volatility. Over the past decade, the disparity in share price has only grown more significant between the companies in the top quartile and those that lag. With asset managers like Blackrock taking a firm stance to reward companies who are putting their sustainability plans into action, other companies will have to follow suit or risk being left out of future fund lineups.  

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