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 in the last few years as global awareness about climate change, a sustainable environment, and responsible investing have increased.
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.
Table of Contents
- Top ESG Investing Trends to Look Out for
- Combating Climate Change
- Restoring Biodiversity
- Giving Mental Health the Attention it Deserves
- Eliminating Social Inequality
- Going for Diverse Food Options
- Revolutionizing the Fashion Industry
- Inter-Industrial Growth Trends
- Better ESG data and reporting frameworks
- ESG performance is influencing access to capital
- More focus on private company greenhouse gas emissions
- More companies are taking a holistic approach to ESG
- What Are ESG Investments?
- Is ESG investing a trend?
- How Can I Spot Greenwashing?
- Final Words
- Is ESG the future of investing?
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 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 to 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 degrees 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.
See Related: Ethical Dividend Stocks to Invest in Today
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. 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 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 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 of 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, 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, 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.
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 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 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 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 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-effects of the 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 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.
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.
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. 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 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.
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 are increasingly demanding companies report their ESG goals and risk factors, creating the need for more reporting frameworks such as sustainability reports and impact reports. Many companies have adopted initiatives to adopt these frameworks in order 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 the disclosure of climate-related financial disclosure, 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, allowing them the opportunity 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 the world of sustainable finance. Investors are increasingly taking ESG credentials into consideration when making investment decisions, and companies with strong ESG performance can often attract more capital than those without.
This means that companies need to make sure they are taking steps to improve their ESG performance if they hope 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.
More focus on private company greenhouse gas emissions
Private companies have an important role to play in reducing carbon emissions. By tracking and monitoring their own emissions, private companies can ensure that they are taking steps to reduce their contribution to global warming. Private companies need to focus on using fewer fossil fuels and investing in renewable energy sources such as solar, wind, and hydropower to reduce climate-related risks.
Additionally, they should consider establishing private ESG scores which measure the environmental, social, and governance performance of a company. Doing so will help ensure that private companies are making progress toward reducing their carbon emissions and doing their part to protect our planet.
More companies are taking a holistic approach to ESG
More and more companies are taking a holistic approach to ESG (Environmental, Social, and Governance) in order to make sustainable investment decisions. This approach takes into account the long-term impact of both environmental and social factors, as well as corporate governance practices.
By considering all three aspects, companies are able to assess the potential risks and opportunities associated with their investments. Additionally, a holistic approach allows companies to better understand the potential impacts of their investments on the environment, society, company culture, and ultimately on 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 a bit over your head, 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, 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 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.
There are options where you can invest 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 list of ESG investing trends below.
Is ESG investing a trend?
The ESG trend has been gaining a lot of attention in recent years, and there is no doubt that investing in ESG is 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 make sure they are making ethical investments.
While some people may question whether or not 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 it looks like ESG will continue to grow in popularity for many years to come. With more companies taking an active stance on sustainability and ethical practices, it’s likely that investing in ESG stocks and funds will become much more common in the future.
How Can I Spot Greenwashing?
Greenwashing is a deceptive marketing practice that attempts to present an organization as environmentally friendly without actually making any meaningful changes to reduce climate-related risks. To spot greenwashing, look for sustainability initiatives that lack disclosure or detail, or for initiatives that are 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 are being taken by the company in order to ensure they are truly dedicated to creating a more sustainable future.
The best way to identify greenwashing is by looking at the company’s ESG policies and goals and comparing them against their actual performance on environmental issues such as carbon emissions reduction.
Concluding my list of the top ESG 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. Also, for additional knowledge.
Do you know the difference between ESG, SRI, and Impact Investing? This is something that you should know. If investors and asset managers help ESG 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.
Is ESG the future of investing?
ESG investing is on the rise with many investors looking for sustainable and responsible options when it comes to their money. ESG investing is geared towards those who want to make sure 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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Kyle Kroeger, esteemed Purdue University alum and accomplished finance professional, brings a decade of invaluable experience from diverse finance roles in both small and large firms. An astute investor himself, Kyle adeptly navigates the spheres of corporate and client-side finance, always guiding with a principal investor’s sharp acumen.
Hailing from a lineage of industrious Midwestern entrepreneurs and creatives, his business instincts are deeply ingrained. This background fuels his entrepreneurial spirit and underpins his commitment to responsible investment. As the Founder and Owner of The Impact Investor, Kyle fervently advocates for increased awareness of ethically invested funds, empowering individuals to make judicious investment decisions.
Striving to marry financial prudence with positive societal impact, Kyle imparts practical strategies for saving and investing, underlined by a robust ethos of conscientious capitalism. His ambition transcends personal gain, aiming instead to spark transformative global change through the power of responsible investment.
When not immersed in the world of finance, he’s continually captivated by the cultural richness of new cities, relishing the opportunity to learn from diverse societies. This passion for travel is eloquently documented on his site, ViaTravelers.com, where you can delve into his unique experiences via his author profile.