What is the future of ESG investing?
Bloomberg Media's Sustainable Future Study reveals where the sustainable investment landscape is headed next. ESG assets will hit $50 trillion by 2025, representing more than a third of the projected $140.5 trillion in total global assets under management, according to Bloomberg.
More and more clients expect their managers to invest expressly in line with their individual ESG goals. The tectonic shift to sustainable investing is therefore set to endure, with the majority of pension plans surveyed continuing to believe ESG factors remain critical to long-term risk management and value creation.
ESG assets are set to reach over $40 trillion by 2030 in line with our inaugural BI ESG Market Navigator study, which revealed that investor appetite remains resilient with over 85% of asset managers planning to boost ESG AUM.
It's popular, having garnered $7 billion in total net assets. Over the past five years, including 2023 through December 4, ESGV has outperformed the broad U.S. stock market embodied by the diverse S&P 500 Index three of those five years.
In the face of political opposition in the US and market uncertainties, a recent Bloomberg Intelligence survey suggests that the global investment community remains steadfast in its commitment to environmental, social, and governance (ESG) principles.
The consequences are that investors accounts suffer, and resources and capital are directed away from the oil and gas industry. The average American's retirement account, when invested with ESG criteria in mind, is being used to further a political agenda, not bring about the best return and savings for the client.
While there are significant barriers to successful ESG integration, such as a lack of awareness and understanding, inadequate data and analytics, short-term focus, and a fragmented regulatory landscape, companies that prioritize sustainability and commit to addressing these barriers can benefit from improved financial ...
89 percent of investors consider ESG issues in some form as part of their investment approach, according to a 2022 study by asset management firm Capital Group.
In 2024, businesses are expected to embrace ESG criteria not just for compliance or risk management, but as a chance to fundamentally transform their business models with the full understanding and acceptance of the need to account for increasingly complex external risks that may be occurring simultaneously.
ESG funds have done as well as other funds over time. However, there are many ESG options available and multiple ways to build an ESG portfolio. You should take into account your investment goals and risk tolerance before getting started in ESG investing.
What is the downfall of ESG?
These days, ESG investments have lost their luster given high interest rates, political backlash, and greenwashing scrutiny. In 2021 during the pandemic boom, U.S. sustainable funds hit a record $358 billion in assets, up from $95 billion in 2017.
As per KPMG's research findings, the broad concept of ESG has steadily lost favor among investors and businesses. Instead, electric vehicles and battery technologies have taken center stage.
In a line used by proponents, those in opposition to the ESG movement also believe there is substantial support behind them. “ESG investments are often opposed by conservatives who feel that ESG investments favor one political ideology and pressures companies to adopt 'woke' policies they don't support,” says Bruce.
Since ESG funds invest in companies that utilizes resources sustainably, is sympathetic to the well-being of its employees, stakeholders and society and is committed to clean governance, the potential risks are reduced.
London, 10 October 2022 – Asset managers globally are expected to increase their ESG-related assets under management (AuM) to US$33.9tn by 2026, from US$18.4tn in 2021. With a projected compound annual growth rate (CAGR) of 12.9%, ESG assets are on pace to constitute 21.5% of total global AuM in less than 5 years.
It is possible that the overly generic ESG brand will never recover its appeal, with the different parts of it eventually rebranded to suit their specific client bases. , the world's largest asset manager, has already dropped it and is now emphasizing transition themes over ethical stewardship of companies.
Musk himself became a vocal critic of ESG ever since Tesla was first booted from the S&P 500's sustainability index a year ago. After Fortune reported some two weeks later about allegations over fraudulent ESG investing by Deutsche Bank, Musk claimed all ESG lists were suddenly fraudulent.
Over the past decade or so, ESG edicts became embedded into corporate America's ecosystem as big shareholders —BlackRock, but also places like Vanguard and Fidelity — and the shareholder advisory firms like ISS and Glass Lewis increasingly voted in favor of these mandates that pushed companies to reduce their carbon ...
One of the biggest criticisms of ESG is that it perpetuates what it was partly designed to stop – greenwashing.
Some studies suggest that companies with high ESG scores tend to outperform the market, while others indicate no significant difference. The relationship between ESG factors and stock performance may vary based on the time horizon, sector, and region.
What are the biggest challenges in ESG investing?
The poll of 420 investors, covering asset owners and managers, hedge funds and private equity firms, finds that 71 percent view 'inconsistent and incomplete' data as the biggest barrier to ESG investing.
ESG Risks are those arising from Environmental, Social and Governance factors that a company must address and manage. These risks are a combination of threats and opportunities that can have a significant impact on an organisation's reputation and financial performance.
Europe maintains its gap with other regions of the world (26.8), well ahead of Oceania (38.9), South America (38.7), North America (39.9), Asia (46) and Africa (56.3). This year, the ESG ranking podium is exclusively Nordic with Finland on top, followed by Sweden (2nd) and Iceland (3rd).
ESG reporting is on the rise. Out of the 500 companies, 494 had reported ESG information to some degree, which is 30 more companies than the previous year and approximately 99% of the S&P 500. Effective ESG reporting requires the use of common standards.
The power of the people – consumers – is playing a crucial role in driving companies towards ESG initiatives. Consumers today are more aware and concerned about the environmental and social impacts of the products they use and the companies they buy from.
