Sustainable finance and ESG investments: earnings and growth in the coming years

Sustainability is an increasingly topical issue and at the center of attention both for politics and the economy. The so-called ESG investments, and more generally sustainable finance, are constantly growing: in the next decade they will be among the drivers of global economic growth and will give great earning opportunities to well-informed investors.

sustainable finance esg investements

Issues such as climate change and pollution, gender and racial discrimination, armed conflicts, seem things too big and complex to be influenced by people’s actions, but this is not the case: individual behavior and choices can change things. Many daily choices can have a positive effect on the environment and community: for example, preferring electric vehicles, organic and km0 foods, a diet that reduces the consumption of meat, encouraging integration between cultures and peoples.

In addition to living responsibly, there is also the possibility of investing responsibly: until recently the question was “why?”, Today it is rather “why not?”.

What are ESG investments?

ESG means Environmental, Social, Governance, therefore ESG investments are those which, among the selection and management criteria, include the consideration of environmental, social and corporate governance impacts. A responsible investor chooses sustainable finance to avoid supporting companies that are not “good citizens” or not attentive enough to ESG issues, or to try to encourage a change towards a more “ESG-friendly” attitude.

An oil company, a mining company or a bank will have different ESG risks and therefore different effects on issues related to the environment, human capital or data security, for example; therefore the responsible investor will evaluate them for specific issues related to their respective sectors. However, the goal remains to generate / induce positive benefits for the whole society, as well as to make a profit from its investments.

An important moment for these investments was 2015, when the United Nations identified the “17 Sustainable Development Goals” (SDGs) to be achieved by 2030: No Poverty, Zero Hunger, Good Health and Well-being, Quality Education, Gender Equality, Clean Water and Sanitation, Affordable and Clean Energy, Decent Work and Economic Growth, Industry, Innovation and Infrastructure, Reduced Inequality, Sustainable Cities and Communities, Responsible Consumption and Production, Climate Action, Life Below Water, Life on Land, Peace and Justice Strong Institutions, Partnerships to achieve the Goal.

The 17 SDGs clearly define the areas on which to focus ESG and “impact investing” choices. The focus is not limited to the activities of companies linked to climate, environment, social or governance, but above all to how they concretely contribute to the objectives defined by the United Nations: 169 objectives that countries, governments and companies must achieve by 2030. A strong input to sustainability initiatives that in this case comes from the institutions.

ESG investments are a long-term opportunity

For this reason, it is clear that ESG investments are not just yet another trend born from the financial industry, ESG investments are a long-term theme destined to grow, also thanks to greater awareness and attention from people. ESG fundraising streams prove this, even in a critical year like 2020.

esg etf subscriptions

According to Morningstar data, sustainable funds and ETFs had $ 46 billion in subscriptions in the first quarter of 2020, as opposed to the several billion redemptions of other financial products. ESG ETFs raised $ 52 billion of the $ 6 trillion invested globally in ETFs (ETFGI data), while Brown Brothers Harriman’s “2020 Global ETF Survey” estimates that around 75% of global investors expect to increase in the coming years investments in companies that comply with sustainability criteria: within five years, one in five investors will invest between 20% and 50% of their assets in ETFs and ESG funds.

How much do ESG investments yield?

The growth of sustainable finance shows that today, for many investors, not only “how much you earn” is important, but also “how you earn”. But these are investments, so the data on profits are obviously fundamental, and quantitatively the data are very interesting.

According to numerous analyzes, investing responsibly with ESG criteria also means obtaining higher returns than investments in companies that don’t care aspects of environmental, social and corporate sustainability. To take a cold and rational example, companies’ attention to ESG issues implies lower risks of lawsuits and expensive compensation, and a greater demand for shares and bonds (and therefore rising prices) of those who want to support only responsible companies.

esg investments yield

A few concrete numbers: between 2015 and 2020 (first quarter) the ESG investment sector gained 39.2%, the MSCI World Index 47.7%; considering only from 2017 to 2020, ESG investments gained 24.7% while MSCI World “only” 17.7%. But what happened in March, April and May 2020? In this phase marked by the pandemic, the MSCI World lost 13.5%, while the ESG sector lost 10%, thus demonstrating greater resilience. Source: Charles Stanley and FA Analytics 2020.

Up to now, therefore, ESG investments have lacked nothing: a “win-win” choice for the saver who is looking for returns and wants to support sustainable activities. We can only hope this continues, of course amid the physiological ups and downs of all investments.

Financial resources and how they were directed have produced the most significant changes in our history, today we can influence the direction of change: ESG investments give everyone this possibility.

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