Today’s financial world highlights a more profound shift towards sustainability and responsible investing. Sustainable Finance and ESG (Environmental, Social, and Governance) investing are not mere buzzwords; they signify a profound transformation in our financial ethos.
This evolution is propelled by an elevated awareness of our collective impact on the planet and the recognition that astute investments are intrinsically linked to long-term sustainability. In the following discourse, we will delve into the compelling trends and opportunities that Sustainable finance and ESG Investing bring to the financial industry, illuminating a path towards a more equitable, balanced, and resilient global economy.
4 Trends Shaping the ESG Investing Landscape
Ethics and Integrity
Corporations are faced with a decline in public trust. There’s negative sentiment around Big Tech, Big Pharma, Big Media, etc.
The PwC 2023 report on ESG places the highest priority on ethics and integrity. A growing number of companies will have to set and adopt ethical standards into their practices to ensure compliance with regulations and norms and stay away from PR nightmares, even if it comes at an additional cost and affects the bottom line.
And the push will come from all stakeholders: consumers, employees, shareholders, government, regulators, etc.
As businesses adopt more ethical practices, their valuation could increase, benefiting you as an investor.
Net-Zero Transition
In a report published by NASA, more than 90% of climate scientists surveyed agree that climate change is real and is primarily due to human activities.
Morgan Stanley estimates that companies transitioning to net-zero emissions will shape the next decade. And such companies are likely going to dominate the future.
Many companies worldwide have signed the climate pledge and aim to achieve net-zero carbon emissions by a specific date. Apple is one of those companies, and even some oil companies like Shell and ExxonMobil have such targets.
The same Morgan Stanley report also predicts that there will be competition for land among companies for solar energy production. These are areas where opportunities abound.
Income and Gender Inequality
The world is growing unequal. The wealthiest 1% own about half the world’s wealth and comprises so few relative to the bottom of the pyramid or the poorest 4 billion people. Wider income inequalities can lead to social issues, a less skilled workforce, lower purchasing power, and ultimately, societies that are less efficient economically, growing at a slower pace.
Narrowing the gender gap and the gender pay gap are other priorities. Potential benefits in advancing women’s include reduced poverty, increased productivity, and growth.
Executive compensation is another area of focus for ESG investors. Even though the CEO-to-worker pay ratio slightly declined in 2023, it is still at a high ratio of 222:1. While CEOs should be rewarded appropriately, so should the workers who aid them.
These are significant issues that societies, politicians and corporations must address.
Green Bonds
ESG isn’t only limited to equity securities. In the last few years, several corporations and governments have issued green bonds, fixed-income securities whose proceeds are earmarked for specific green projects, aka climate-related projects.
It started in 2007 when the European Investment Bank issued green bonds worth EUR 600 million. These were index-linked security assets that could be bought and traded. A year later, the World Bank issued public and corporate green bonds. Seychelles Government issued blue bonds worth $15 million. Brazil has recently joined the trend and issued ESG sovereign bonds worth $2 billion.
The green bond issuance trend has accelerated in recent years, and those securities are another way to build wealth while doing good for the world.
