During the recent Climate Week NYC, several trends emerged in sustainability investing that signals the way investors will possibly search for environmental, social, and governance (ESG) investment opportunities in 2020.
Trend One
Major companies are realizing that investors and their clients are channeling their conscious more when investing.
Many investors are carefully scrutinizing companies that make a positive difference in the world and their businesses. Companies with environmentally-friendly policies, workplace diversity, and hoist optimistic influence on hot-button political issues like gun violence could see a lot more interest from investors.
Markets often are influenced by human behavior, and investors will likely focus less on divestment and negative screening. Instead, they want to see companies positively address climate change (installing solar panels on their buildings or reducing their carbon footprint) before investing.
For example, California’s State Teachers’ Retirement System, which has $236.9 billion of funds, recently decided to focus more on sustainability with its long-term investments. Three ESG global equity managers will now run a $750 million chunk of the fund. Other states are looking to do the same.
Trend Two
In 2020, investors can expect more companies to create ESG strategies for their businesses. That’s good news. Investors have long wanted more data before they risk investment, and they want companies to be willing to provide it. If companies fail to do so, they could jeopardize their businesses as savvy ESG investors will choose companies that easily share their environmental strategies, practices and impacts.
Many U.S. companies do not provide this information, and if they do, it’s often incomplete data, inconsistence reporting metrics, weak disclosures, and questionable validity. Investors will start to demand more disclosure.
If companies fail to disclose, investors will wonder why they are reluctant. Are they hiding something? Can a company manage these risks along with any climate disruptions (fires, hurricanes, floods, etc.)? If a company carries risks, investors want to know if a company will be successful 10 years from now. Companies should be hyper-prepared for changes in sustainability financial fluctuations, the planet’s actual physical shifts, and governmental policies. The ability to manage ESG disruptions and impacts will greatly benefit a company. In the United Kingdom, firms will have to publish their policies on the integration of sustainability risks in their investment decision-making process by the end of 2020. So far in the United States, that is not a requirement, but one message emerged from Climate Week: Asset managers want ESG factors in their portfolios.
Trend Three
Investors should watch Europe and the rest of the world for innovation and methods to placing ESG at the forefront of their agendas. From reducing greenhouse gas emissions reductions to carbon neutral programs, investors are looking at climate-related developments and programs throughout the world. Many of these projects are in Europe, Canada, Latin America, Asia, Africa, and Australia.
In Edinburgh, Scotland, for instance, Project Heather will be the first regulated investment exchange to focus on “businesses that are making measurable positive social and environmental impact.” The exchange chose Climate Week NYC to launch its concept. In Canada, members of its federal government’s expert panel on sustainable finance recently published a report that states: “Our recommendations seek to connect the dots between Canada’s climate objectives, its economic ambitions and its investment imperatives. At its essence, if Canada is to meet its long-term environmental and economic objectives, sustainable finance needs to go mainstream.”
Although the United States withdrew from the 2015 Paris Climate Agreement in 2017, other countries are taking its commitment seriously. To meet those goals, the Institute of International Finance estimates that nearly $100 trillion of new investment will be needed by 2030.
At Climate Week NYC, many events focused on climate finance and investment. There was a reason for that. Smart investors realize the future of investment is green, and that ultimately means a lot more green in their portfolio and accounts.
Engaging institutional investors around ESG strategies is an area where Round Rock can collaborate with organizations to create tangible value. If this is an area where your organization could benefit, send an inquiry to us at