Defining The Next Generation Of ESG Investing

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 "According to a 2020 report by First Insight, 73% of Gen Z consumers surveyed were willing to pay more for sustainable products, more than every other generation."

The last few years have accelerated the conversation for many investors around the importance of integrating environmental, social, and governance (ESG) factors into their investment analysis to drive returns. ESG investing as we know it began in the 1960s, fueled by the civil rights, antiwar, and environmental movements. It was originally coined as “socially responsible investing” and manifested in strategies like the boycott of companies who provided weapons used in the war, avoiding “sin” stocks that dealt in alcohol, tobacco, or gambling, and targeted investments into housing projects.

Today, after decades of protests, political progress, and legislation, ESG investing is mainstream. Over 33% of all assets under professional management in the US are now put into socially responsible investments, and a record $120 billion was invested in ESG-focused ETFs in 2021 (more than double 2020s $51 billion). We’re seeing dramatic growth on the retail side as well, with money managers reporting a 50% increase between 2018–20 in the amount of sustainably-invested assets they manage on behalf of retail and high net worth investors. And these investments are outperforming and showing lower volatility — 77% of portfolios with ESG have survived the last 10 years, versus 46% of others.

It’s clear that the importance of environmental, social, and governance issues are no longer just the prerogative of the socially conscious, but those seeking top financial returns as well. Regulatory tailwinds, environmentally-friendly legislation, and mandates that reduce socioeconomic inequality will continue to create more opportunities for big gains for these companies in the coming years.

 

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