Regulators are taking note as well, with the EU imposing sustainability-related disclosures on financial services firms. With momentum coalescing around sustainability, it can create powerful opportunities for portfolios.
Global Market Strategist
Sustainability is likely to be a decade-defining theme, and momentum is building from all of the major actors in the global economy. Global policymakers are strengthening commitments to net zero carbon emissions. Many consumers are opting for more sustainable choices particularly in transportation, energy and food consumption. Companies are responding to changing consumer preferences by adapting products, services and supply chains. Investors are flocking to sustainable investment strategies, measured by ESG (environmental, social, governance) factors. Nearly $205 billion has flowed into ESG strategies globally year-to-date, bringing AUM to $2.1 trillion. Regulators are taking note as well, with the EU imposing sustainability-related disclosures on financial services firms. With momentum coalescing around sustainability, it can create powerful opportunities for portfolios.
As momentum has been building around ESG investing, the philosophy behind it has also been evolving. Simply said, sustainable investing is about risk mitigation (governance) and harnessing the opportunities that come from growth and change, particularly environmental and social shifts.
Although risk mitigation has long been a key tenet of any successful investment strategy, with valuations high and pockets of froth in the markets, investors should ensure the companies they invest in have viable business models, realistic growth prospects and operational excellence. External threats companies face are also being amplified by technological advances. Robust cyber security has become critical not just for technology companies, but also financial firms, retailers and even energy and utilities companies.
On the environmental front, world leaders will convene at the U.N. Climate Change Conference (COP26) in November, aiming to cement details of the Paris Agreement, strengthen commitments to net zero carbon emissions and mobilize financing. Tackling climate change will require major innovation and investment from both the public and private sectors, but presents lucrative opportunities for the companies and countries that succeed. In fact, there could be significant economic and strategic benefits to being the leader in these new industries, which, in turn, can create opportunities for growth in portfolios.
Environmental change often takes the spotlight, but there is significant social change afoot. The pandemic not only revealed the global health challenges that persist, but also the disparate outcomes for lower income, minority or underserved communities. This has sparked demand for improved and more accessible medical solutions and investment in housing, health care and education. Even the Fed has acknowledged full employment includes a more diverse workforce.
Sustainability encompasses many of the solutions and innovations that countries, companies and consumers demand for the future, which should translate to attractive long-term opportunities for portfolios.
Exhibit 10: Fund Flows Suggest investors are warming up to sustainable investing
AUM in sustainable investment strategies, billions