ESG investing trends are not a new concept. These trends have been pulling down and hiking up companies’ stock values for years. However, ESG investing trends are expected to influence the investment market significantly 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 have changed in the last few years as global awareness about climate change, a sustainable environment, and responsible investing has increased.
More and more investors are looking into environmental, social, and governance factors or ESG investment. 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 into the subject.
Top ESG Investing Trends to Look Out for
As the interest in ESG investments increases, new ESG investing trends are also emerging. Even though the niche is still young and evolving, clear investment trends are 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.
The Paris Agreement was put forward in 2015 for those who don’t know. The treaty worked on legally binding various countries worldwide 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 policy amendments or face the government’s consequences. However, five years of policy enforcement have shown in research conducted last year that only 16% of IMI companies align with the regulations to meet the 2-degree Celsius global temperature target.
The Paris Agreement also set a second and more challenging target of 1.5 degrees Celsius per year. This is only achieved by a mere 5% of global IMI companies.
While some may perceive these statistics as insignificant, the number of investors willing to combat climate change is rising yearly. 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.
See Related: Ethical Dividend Stocks to Invest in Today
Restoring Biodiversity
When it comes to sustainable trends in the investment sector, people take biodiversity seriously. Similarly, the biodiversity crisis, with its crippling effects on our ecosystem, has caught the attention of policymakers and investors worldwide. That’s the same position the Paris Agreement held regarding the climate change crisis.
However, since the conference did not occur last year, attributed to the global pandemic, it is expected again in May this year. Considering the conference will be held early this year, it will change business trends for companies that depend on the ecosystem and natural resources.
The policies will likely concentrate on the alarming health threats of diminishing biodiversity, directly affecting the food industries, agriculture, and real estate sectors.
Depending on their location and business nature, companies must create detailed portfolios regarding their biodiversity footprint. This will, in turn, help policymakers create a plan to rejuvenate biodiversity as they take measures to reduce climate risk.
Following this trend, investors should expect more companies to present their entire portfolios to show their exact interaction with areas of high diversity value.
Let’s take the agricultural industry as an example to give you some insight. 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, displacing thousands of species and impacting biodiversity.
Increased awareness of such facts and figures is bound to bring positive changes in major investment sectors, which investors should look for.
See Related: Oracle Corporation ESG Profile (ORCL): Is It Sustainable?
Giving Mental Health the Attention it Deserves
The global pandemic brought 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 became evident with visits and referrals to local mental health clinics, which 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 they deserve in the coming years, they will continue to face significant financial loss on the way.
Some organizations have already addressed the issue by encouraging flexible work options and outcome-based job models. These can help employees find time for social interaction and 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, which will mean increased revenue for their investors. Conversely, companies that ignore these issues can soon face massive staff burnout and devastating financial losses.
See Related: Best Globalization Jobs & Careers
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 will have to improve how they treat their employees and maintain relationships with their supply chains in the coming years.
Similarly, previous years highlighted inequality, inconsistent pay ratios, and executive remuneration gaps. As people become more aware of their rights, investors must ensure that their portfolio enterprises contribute positively to 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 suffer devastating impacts, such as worker strikes, lawsuits, and social boycotts. In the long run, this will lead to immediate stock depreciation and reduce employee innovation, productivity, and motivation.
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 and plant-based protein alternatives, woke consumers have contributed to exponential growth in both areas.
An obvious example is Impossible Foods, a famous plant-based meat alternative company. Since the pandemic, combined with lockdowns and a 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 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 be highly lucrative investment options for those looking to diversify their portfolios.
See Related: Twilio Inc. ESG Profile (TWLO): Is It Sustainable?
Revolutionizing the Fashion Industry
Sustainability trends in the fashion industry were probably the most unexpected trends in recent years. A sector that took pride in setting new trends and bringing innovation to seasonal outfits was always lagging regarding ESG issues.
Nevertheless, Vogue predicts sustainable fashion might emerge following the pandemic’s aftereffects. Companies selling used clothing are already seeing massive sales growth this year.
Over the last two years, the second-hand apparel market has grown 21 times more than its brand-new clothing counterpart. Brands like Patagonia, ThredUp, and Poshmark are expected to increase their net worth by billions during the coming years, attributed to the sustainable ESG fashion trend.
That’s a profitable investment option for investors looking to diversify their portfolios in the fashion industry.
See Related: Tiga Acquisition Corp. ESG Profile (TINV): Is It Sustainable?
Inter-Industrial Growth Trends
Let’s face it; upcoming 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.
Look at the UK’s aim to power all its 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. Several sectors, like real estate, construction, and infrastructure companies, must 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 trends. Take, for instance, Dyson, a brand that was used to build 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.
See Related: What is Sustainable Investing?
Better ESG data and reporting frameworks
This trend focuses on better ESG data to inform and make decisions. Investors increasingly demand companies report their ESG goals and risk factors, creating the need for more reporting frameworks such as sustainability and impact reports. Many companies have adopted initiatives to adopt these frameworks to become more transparent with their responsible investment practices and supply chain governance.
This trend has been met with great enthusiasm by investors who appreciate being able to understand the ESG risks a company is facing as well as its commitment to sustainability.
Companies that embrace this trend stand out in both the public eye and investor communities for their commitment to disclosing climate-related financial information, risks, and goals (such as nature-related financial disclosures), making them attractive investments for those interested in responsible investing.
Better ESG data allows financial institutions, investors, and asset managers to make informed decisions when considering potential investments. This allows them to invest responsibly while also generating returns on their investments. This will increase the availability of different product offerings, such as ESG funds or ETFs.
See Related: What is Sustainable Fashion?
ESG performance is influencing access to capital
ESG performance is increasingly influencing access to capital in sustainable finance. Investors increasingly consider ESG credentials when making investment decisions, and companies with strong ESG performance can often attract more capital than those without.
Companies need to improve their ESG performance to gain access to the capital markets. Sustainable finance is becoming an important factor in how businesses manage their finances, and having strong ESG credentials can open doors for companies seeking access to capital.
See Related: Cigna Corporation ESG Profile (CI): Is It Sustainable?
More focus on private company greenhouse gas emissions
Private companies have an important role in reducing carbon emissions. By tracking and monitoring their emissions, they can ensure that they are taking steps to reduce their contribution to global warming. To reduce climate-related risks, private companies must focus on using fewer fossil fuels and investing in renewable energy sources such as solar, wind, and hydropower.
Additionally, they should consider establishing private ESG scores that measure a company’s environmental, social, and governance performance. Doing so will help ensure that private companies are making progress toward reducing their carbon emissions and doing their part to protect our planet.
See Related: Caterpillar Inc. ESG Profile (CAT): Is It Sustainable?
More companies are taking a holistic approach to ESG
More and more companies are taking a holistic approach to ESG (Environmental, Social, and Governance) to make sustainable investment decisions. This approach considers the long-term impact of environmental and social factors and corporate governance practices.
By considering all three aspects, companies can assess their investments’ potential risks and opportunities. Additionally, a holistic approach allows companies to understand better the potential impacts of their investments on the environment, society, company culture, and, ultimately, their bottom line.
As ESG and sustainable finance become increasingly important in business decision-making, it is essential that companies take a comprehensive view when assessing the risks and rewards of their investments.
See Related: Best ESG Rating Agencies
What Are ESG Investments?
If the concept of our ESG trends above is confusing, here’s a brief introduction 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 and steady revenue for the investor. Apart from responsible investing that helps the investor give back to society and the planet, these 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 profitable 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 follow trends in ESG investing to stay relevant.
Furthermore, recent research shows that following sustainability trends does not adversely affect the performance of assets.
There are options for investing your ESG funds. You have to research it to be knowledgeable before getting into something. If you’re concerned about the environment and want to implement conservative practices in your organization, check out my ESG investing trends below.
See Related: Exxon Mobil Corporation ESG Profile (XOM): Is It Sustainable?
Is ESG investing a trend?
The ESG trend has gained considerable attention in recent years, and investing in ESG is undoubtedly becoming increasingly popular. As the world becomes more aware of its environmental impact and the social issues that come with it, investors are turning to ESG solutions to ensure they are making ethical investments.
While some may question whether this will be a lasting trend or just a fad, there is no denying that ESG is here to stay.
Trends like this often take time to develop, but ESG will continue to grow in popularity for many years. With more companies taking an active stance on sustainability and ethical practices, investing in ESG stocks and funds will likely become more common.
See Related: Two Harbors Investment Corp. ESG Profile (TWO): Is It Sustainable?
How Can I Spot Greenwashing?
Greenwashing is a deceptive marketing practice that attempts to present an organization as environmentally friendly without making meaningful changes to reduce climate-related risks. To spot greenwashing, look for sustainability initiatives that lack disclosure or detail or for initiatives not backed up by ESG risk management strategies and low carbon emissions targets.
Companies may try to appear sustainable by using terms such as “green,” “eco-friendly,” or “sustainable” without actually committing to reducing their carbon emissions. It is important to look beyond the marketing message and pay attention to what actions the company is taking to ensure it is truly dedicated to creating a more sustainable future.
The best way to identify greenwashing is to examine a company’s ESG policies and goals and compare them against its performance on environmental issues such as reducing carbon emissions.
Do you know the difference between ESG, SRI, and Impact Investing? You should. If investors and asset managers help ESG trends move from side niches to mainstream business options, we could soon see the global economy evolve into a sustainable and ethical marketplace.
FAQ
Is ESG the future of investing?
ESG investing is on the rise, with many investors looking for sustainable and responsible options for their money. ESG investing is geared towards those who want to ensure their money is being put into companies and projects that align with social responsibility, environment-friendly initiatives such as limiting global warming, or good corporate governance.
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