ESG investing trends are not a new concept. These trends have been pulling down and hiking up the stock values of companies for years. However, ESG investing trends are expected to have significant influences on the investment market in the long run. Read through my list to find out more about these trends.
When it comes to investments, most of us look for the expected returns, right? However, things are changing for the last few years as global awareness about climate change, sustainable environment, and responsible investing increases.
Today, more and more investors are looking into factors like environmental, social, and governance, called ESG investment. An upward trend in ESG investment is now a fact.
In the last few years, the ESG investment trends gained momentum, as sustainable investing increased by 456% from 2005 to 2020.
Simply put, there is a visible shift from traditional investment norms to more ethical, sustainable, and responsible investments. And it isn’t fading away anytime soon.
If anything, it is now moving into the mainstream instead of a side niche. Let’s explore the top ESG investing trends for this year so you can get further insight on the subject.
What Are ESG Investments?
Before we start listing out the ESG investing trends for this year, here’s a brief introduction to the concept for beginners.
ESG mainly stands for environmental, social, and governance investing trends. In a nutshell, the genre covers all investment opportunities that aim for positive returns for global issues along with steady revenue for the investor.
Apart from responsible investing that helps the investor give back to society and the planet, ESG investing trends have a broader meaning.
Today, all investments based on social values or morals, such as ethical investing and social impact investing, are included in sustainable investing.
Simply enough, the ongoing ESG investment trends suggest that it is quite profitable just to be a good human being and put your money to productive use.
From reducing their overall carbon footprint to partnering with other brands to manage resources properly and ensuring ethical labor employment, companies worldwide are following trends in ESG investing to stay relevant.
What’s more, recent research shows that following sustainability trends does not have any adverse effects on your assets’ performance.
If you’re concerned about the environment and want to implement conservative practices into your organization, check out my list of ESG investing trends below.
Top ESG Investing Trends to Look Out for
As the interest in ESG investments increase, new ESG investing trends are also emerging.
Even though the niche is still young and still evolving, you can find some clear investment trends shaping up with time. Here are some of the most prominent sustainability trends for the upcoming years.
Combating Climate Change
The Paris Agreement made climate change and the factors affecting global temperature a key focus for businesses and investors. With the Biden administration keen to follow the Paris Agreement, ESG investments are expected in this sector.
For those of you who don’t know, the Paris Agreement was put forward back in 2015. The treaty worked on legally binding various countries around the world to help reduce yearly global climate change to only two degrees Celsius.
Notably, most carbon emissions in every country are produced by high-scale businesses like energy production, steel industries, and natural resource mining. This means the concerned governments would need to make their business giants reduce their emissions.
Since its advent, the treaty led many enterprises to bring serious amendments in their policies or face the government’s consequences.
However, five years of policy enforcement show in research conducted last year that only 16% of IMI companies align with the regulations laid out to meet the 2 degree Celsius global temperature target.
Along with that, the Paris Agreement also set out a second and more challenging target of 1.5-degree Celsius per year. This is only achieved by a mere 5% of global IMI companies.
While some may conduct these statistics as insignificant, the number of investors willing to combat climate change is rising every year.
Adding to the increasing government-level pressure every year, we can expect more companies to align with the ESG trend and open more investment trends for sustainability.
However, suppose many companies from your portfolio intend to sign an alignment pledge this year. In that case, you could get a serious hit in terms of investment returns until the companies recover from the initial loss.
When it comes to sustainable trends in the investment sector, biodiversity is something people are taking seriously at last. Similarly, the biodiversity crisis with its crippling effects on our ecosystem has caught the attention of policymakers and investors worldwide.
To address this point, a UN conference concerning biodiversity preservation was scheduled last year in China.
The conference was thought to bring forward immediate emergency measures across the world to preserve our ecosystem’s health. That’s the same position the Paris Agreement held of the climate change crisis.
However, since the conference did not occur last year, attributing to the global pandemic, it is expected again in May this year.
Considering the conference is held early this year, it will change business trends for companies that depend on the ecosystem and natural resources.
The policies are likely to concentrate on the alarming health threats of diminishing biodiversity, which will directly affect the food industries, agriculture, and real estate sectors.
Companies will need to create detailed portfolios regarding their biodiversity footprint, depending on their location and business nature. This will, in turn, help policymakers create a plan to rejuvenate biodiversity as they took measures to reduce climate risk.
Following this ESG investing trend, investors should expect more companies to come forward with their entire portfolios to show their exact interaction with areas of high diversity value.
To give you some insight, let’s take the example of the agricultural industry. To grow food, the industry is highly dependent on biodiversity for healthy soil and seed preservation.
However, the industry accounts for almost 80% of the world’s deforestation, which leads to the displacement of thousands of species, impacting biodiversity on the whole.
Increased awareness for such facts and figures is bound to bring positive changes in major investment sectors soon, which investors should look out for.
Giving Mental Health the Attention it Deserves
The global pandemic bought us a year of disrupted schedules and confusing realities. Lengthy lockdowns and social distancing regulations changed our concept of urban living drastically as never before.
Naturally, this caused a significant hike in the reported cases of depression and anxiety. While 64% of US citizens came down with the common signs of depression, 57% suffered from crippling anxiety.
This led us to a dire conclusion. As the global pandemic was taking lives worldwide, mental health was another epidemic the world had to face through its consequences.
The concept further became evident with visits and referrals to local mental health clinics increased five times compared to the pre-COVID society.
I know what you’re thinking; how do these statistics impact the investing trends in the coming years? The answer is simple. Businesses are losing valuable employees due to mental diseases, work pressure, and the lack of emotional support.
Believe it or not, 25% of all UK businesses have reported at least one of their integral team members has quit due to depression and emotional burnout.
This means that unless businesses give mental health the attention it deserves in the coming years, they will continue to face significant financial loss on the way.
Some organizations are already addressing the issue by encouraging flexible work options and outcome-based job models. This can let employees find time for social interaction, recreational activities and help them pursue their hobbies and passions.
Businesses that successfully implement these techniques will see a boost in productivity in the coming years, meaning increased revenue for their investors.
On the other hand, companies that continue to turn a cold shoulder towards these issues can face massive staff burnout and devastating financial losses in the near future.
Eliminating Social Inequality
Whether it’s racism, gender inequality, or the lack of workplace regulation, employees across the world have had enough. And yes, this can directly impact investors who fund companies with their hard-earned money. Here’s how.
With the pandemic bringing workplace operational issues into the limelight, companies in the coming years will have to work on the way they treat their employees and maintain relationships with their supply chains.
Similarly, the previous years highlighted other looming issues like inequality, inconsistent pay ratios, and executive remuneration gaps. As people become more aware of their rights, investors will have to make their portfolio enterprises contribute positively towards these social issues.
Companies that effectively work to bridge the social gap between their employees and provide the necessary benefits to their local supply chains will see an evident rise in their stock prices.
On the other hand, companies that fail to do so can end up with devastating impacts such as worker strikes, lawsuits, and social boycotts.
This will lead to immediate stock depreciation and reduce employee innovation, productivity, and motivation in the long run.
Going for Diverse Food Options
It’s not news that millennials and Gen-Z consumers have sent food corporations on the run to stay relevant.
With their increasing demands for vegan options and plant-based protein alternatives, woke consumers have contributed to an exponential growth in both areas.
An evident example is Impossible Foods, a famous plant-based meat alternative company.
Since the pandemic combined with lockdowns and the lack of physical activity led people to choose healthier diet options, the company sells its products in more than 11,000 retail stores across the US.
That denotes a significant rise in demand, almost 77 times its original in-store demand before the pandemic. Similarly, notable restaurants like Taco Bell and McDonald’s are taking steps towards producing diverse food options for consumers.
While the former is predicted to partner with Beyond Meat later this year, the latter is all set to introduce McPlant, the first plant-based protein option on its menu.
All these statistics and updates show a growing ESG investing trend in the food sector. Currently, the plant-based protein industry is worth a staggering $20 million and is expected to rise in value.
Enterprises bringing innovative solutions and unique agricultural practices to meet this demand can prove to be highly lucrative investment options for those looking to diversify their portfolios.
Revolutionizing the Fashion Industry
Sustainability trends in the fashion industry probably came as the most unexpected ESG investing trends in the current years. A sector that took pride in setting new trends and bringing innovation to seasonal outfits was always lagging behind when it came to ESG issues.
Nevertheless, Vogue predicts that sustainable fashion might see the light of day following the after-affects of the 2019 pandemic. Already, companies selling used clothing items are seeing massive growth in sales this year.
Over the last two years, the second-hand apparel market has grown 21 times more than its brand-new clothing counterpart.
Namely, brands like Patagonia, thredUp, and Poshmark are expected to increase their net worth in billions during the coming years attributing to the sustainable ESG fashion trend. That’s a profitable investment option for investors looking to diversify their portfolios in the fashion industry.
Inter-Industrial Growth Trends
Let’s face it; upcoming ESG investing trends clarify that fixing contemporary issues in today’s world is not an individual’s game. Instead, companies have to work together and help one another if we aim to fulfill our global society goals.
Take a look at the UK’s aim to power all their homes through wind power by the end of this decade. This does not mean the government only has to bring energy production companies together at one front to reach this goal.
Instead, several sectors like real estate, construction, and infrastructure companies will have to work together to make this possible.
This whole idea of companies working together towards a noble cause makes the brands relevant to today’s population and helps them thrive amidst the ESG investing trends.
Take, for instance, Dyson, a brand that took to building medical ventilators when the need arose during the pandemic. Such inter-industrial support systems are expected to increase and generate considerable financial revenue in the coming years.
Concluding my list of the top ESG investing trends this year, it is evident that these trends are not new or entirely alien concepts. However, factors like globalization, social threats, and environmental issues have fueled these practices into highly profitable investment options.
While COVID-19 vaccines are distributed worldwide, the global population is subsequently faced with an opportunity to shape its future.
If investors help ESG investing trends to move up from side niches to mainstream business options, we could see the global economy evolve into a sustainable and ethical marketplace in the near future.