ESG Investing

ESG Investing

July 15, 2021
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“I believe we are on the edge of a fundamental reshaping of finance.” – Larry Fink, BlackRock CEO

One could argue that corporations have never been held more accountable. Whether it be within their own communities, dealing with social unrest, or announcing sustainability initiatives.

Environmental, social, and governance (ESG) investing means investing in companies that seek positive returns and a positive long-term impact on society and the environment. This movement of ESG investing is happening and frankly starting, “…a period of significant capital reallocation” as Larry Fink, CEO of BlackRock, stated.

BlackRock is the largest money manager in the world with $9.5 trillion assets under management, according to ADV Ratings. When the CEO of BlackRock focuses his annual newsletter to CEO’s across the world on ESG and climate change, that should grab your attention.

Addressing sustainability and the climate was typically done as a marketing tactic to improve a company’s overall image. The old mindset was that social responsibility and sustainability initiatives eat into profits. But this has drastically shifted. Now, investors and money managers have realized that ESG investing can help identify risks and mitigate disasters.

The money seems to be flowing in this direction as well. At the end of 2020, ESG-integrated strategies assets under management (AUM) were $8.2 trillion, up 34% from the end of 2018, according to NASDAQ.

Governments continue to set bold goals on emissions and the importance of tracking those metrics, which is forcing companies to follow suit. This has led to increased investments in solar wind farms, sustainable initiatives such as reducing their carbon footprint or decreasing water usage. Furthermore, China, Canada, California, Costa Rica, Denmark, EU, France, and many more have all committed to have a net zero carbon goal in 20-30 years.

So how does this impact you as an investor? Well now you have money managers and investment firms building ESG into their analysis of companies. According to Nasdaq research, the top 150 asset managers globally now have an average of eight ESG analysts per firm. Companies are disclosing more and more information around their sustainability efforts (the SEC added human capital as a mandated 10-K disclosure in FY 2020), and their goals in order to help their communities and the environment.

This is something to note when performing research on your investments.

However, there needs to be more accountability and consistent and reliable ESG data for these disclosures to become more meaningful. It’s a step in the right direction for companies to make these aggressive initiatives and goals but tracking these as an investor can be cumbersome and frustrating.

Investors can no longer argue the relevance of ESG and the need for additional disclosures. This trend is here to stay and it’s the responsibility of these corporations to follow suit, or risk being left behind.

 Jon – Private Wealth Advisor

Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual.