The extraordinary growth in the amount of money flowing into environmental, social and governance (ESG) investments in the past decade is one of the most noteworthy investment market developments of recent years.
Barely a week goes by without an ESG-related story in the financial media – such as the launch of a new fund, or yet more details of the ever-growing inflow of investments into ESG products.
The growth of ESG investments has, understandably, prompted many analysts to consider the long-term future of the sector.
You may have read our previous blogs about the basics of ESG investment, and how to spot “greenwashing” when you’re looking for sustainable investment opportunities. Now, read about the long-term prospects for ESG investing.
The background to ESG investment
ESG investment has its origins in the 1960s and the first stirrings of what was then known as “socially responsible investing”.
The market further expanded in the 1980s with the rise of personal investing in both pensions and savings. Many “green” funds launched at this time tapped into the rising ecological awareness in response to the increasing number of people who were starting to ask where their money was invested and how it was managed.
According to Forbes, ESG was first referenced in 2005, as part of a corporate investment initiative launched by the United Nations.
17 years on, leading fund managers, JP Morgan report that over $500 billion (£417 billion) was invested in ESG-integrated funds in 2021. This equated to a 55% year-on-year increase in ESG-related assets under management (AUM).
Meanwhile, Bloomberg predicted that the ESG market would reach a remarkable $53 trillion (£44 trillion) by 2025 and make up more than a third of the total amount of AUM worldwide.
Investors continue to be attracted by ESG investments
As ESG investments continue to be increasingly popular, there’s nothing to suggest that their rise is going to decline any time soon.
Some of that growth could be attributed to the rise in ESG availability – an “if you build it, they will come” scenario.
There is a sense that active fund managers, bruised by the rise in passive investment, have seen ESG investment as a profitable market. Their understandable reaction has been to develop their own ESG propositions to attract investor money.
The statistics clearly show an underlying consumer demand for ESG investment options and appetite for sustainable choice is growing.
Companies are being encouraged to take action
Along with investment houses, businesses themselves have increasingly realised that to attract individual and corporate investment, they need to ensure that they have credible ESG credentials and a commitment to long-term sustainability.
As the old saying has it, “success breeds success” and that clearly has some resonance in the current ESG market.
As companies see their competitors succeed in achieving sustainable long-term growth within ESG parameters, it’s inevitable that they’ll be more likely to travel down the same path themselves.
They are helped by a distinct lack of any strict regulatory framework, making ESG parameters relatively broad.
Unfortunately, the current lack of strict oversight has led to a lot of “greenwashing”, allowing companies to exaggerate their ESG credentials to attract investor money.
That’s why financial regulation around the promotion and make-up of ESG funds is important. The good news is that the Financial Conduct Authority (FCA) will shortly be issuing official guidance into what is – and isn’t – an acceptable ESG investment.
Sustainability really is the key
ESG research frameworks are being developed and refined to support the growth in sustainable investment management.
This also means that market developments and external events can be assessed in terms of their ESG impact and how it will affect different companies.
For those companies prepared to seek innovative and sustainable solutions this can work positively, as they are more likely to produce an ESG strategy that investors desire.
For example, ongoing research can help identify companies that are developing climate change solutions and those that are helping to enable the transition to a low carbon economy.
Growth has also been driven by technology and innovation
The internet has transformed the way information is obtained and analysed. This means that both potential and existing investors have readily available access to a plethora of data and other research.
This has resulted in a big improvement in corporate transparency, as it allows increased insight into how businesses are managed from an ESG perspective.
An increasing amount of information online will continue to help drive the ESG market. After all, it’s much easier for you to research a certain fund or company with a couple of clicks on your keyboard, than having to wade through voluminous reports and investment brochures.
You can access ESG portfolios through our investment proposition
If you’re concerned about how and where your pension and other savings are invested, we would strongly recommend that you get expert investment advice.
We have a variety of LEBC Governed Portfolios, covering different risk profiles and time frames.
These include five bespoke ESG portfolios.
After completing an in-depth risk analysis and gaining more insight into your motivations as an investor, we can help you to identify the most appropriate ESG portfolio for your investment needs.
Get in touch
To find out more about ESG investments and our LEBC Governed Portfolios, please get in touch. Email firstname.lastname@example.org or call us on 0800 055 6585.
The information contained in this article is based on the opinion of LEBC Group Ltd and does not constitute financial advice or a recommendation to any investment or retirement strategy. You should seek independent financial advice before embarking on any course of action. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.