ESG investing used to be a major issue with many investors. Many see it as an inefficient way to increase their wealth because you limit yourself to a few select companies for investing. However, impact investing is constantly growing. There are a lot of factors that are affecting this growth and it might be time to consider following the trend.
ESG Well On Its Way To Reaching $41 Trillion Forecast
Earlier this year, Bloomberg Intelligence’s Director of Research ESG Adeline Diab says that the ESG sector is primed for major growth. That doesn’t come with a few challenges though. Adeline says that “scrutiny is going to play an important role” because market regulators want to mitigate the risks of greenwashing.
As per Bloomberg Intelligence, the ESG market will grow from $30.6 trillion in 2018 and $22.8 trillion in 2016 to more than $35 trillion in 2020, accounting for one-third of the total assets globally. The report found that ESG assets could reach $41 trillion by 2022 and over $50 trillion by 2025, assuming growth of 15%, a third of the pace of the past five years.
Europe accounted for half of the world’s ESG assets and was the frontrunner in the market until 2018. However, the US has grown more than 40% of her in the last two years, and by 2022 she is expected to exceed $20 trillion. The growth rate will be halved this year.
Cumulative inflows in ESG exchange-traded funds (ETFs) surpassed his $121 billion forecast for 2021 based on a bullish scenario by Bloomberg Intelligence, and it recorded more than $75 billion during the first half of the year. Investments in ESG ETFs have increased for more than 38 consecutive months, and the pace hasn’t slowed, according to the report.
This is just looking at ESG in the short-term. It’s expected to reach over $100 trillion by 2030 if the trend continues. The support for ESG is ever growing and it’s hard to see when or if it will actually end.
Why ESG Continues To Grow
ESG is on an upward trajectory. Even during trying times like the recent pandemic, there are still massive movements in the industry. Companies are investing more in ESG projects. Investors are becoming more focused on impact investing. Why does ESG continue to grow?
- Investors Are Becoming More Aware
Investors have a lot of power on their hands and they’re aware of it. They understand that their investments don’t just benefit themselves, but also the world around them. Everyone wants to make a significant impact with their decisions and this is primarily why investors are supporting ESG companies even more.
With more people going behind it, the ESG sector is primed for even better growth in the future. Each year, more and more investors are making the change and it might be wise to join soon.
- Companies Know They’re More Than Just Names
Just like the investors, the companies themselves know that they are more than just names. With the things that they do and provide, they understand that their actions can either do the world good or bad. Having ethical business practices benefit companies in many ways.
Companies that have sustainable business operations are able to continue conducting business despite market challenges. It isn’t a surprise that companies with high ESG ratings are able to push through the pandemic despite the major change in the world.
Perhaps the biggest benefit is that they’ll be supported by a large number of investors. More companies are setting up better CSR and ESG goals because of these key benefits.
- People Are Fighting For Equality And Better Treatment
ESG also solves social problems such as gender and racial inequality. People globally understand that it’s everyone’s right to have equal opportunities and pay when it comes to employment. To push this agenda forward, people are aggressively fighting for companies to implement better treatment inside the workplace.
This agenda increases the traction within the ESG industry as more brands strive to meet these new standards. For investors, this only means that companies supporting environmental and social movements are going to have better financial support in the future as well.
- The Effects Of Scandals Are Well-Known
People are willing to call out companies that partake in unethical practices – such as the ones that cause serious harm to the world or even communities. “Cancel culture” might be a laughing matter for some but for companies, this can make or break the stability of their assets.
Beyond doing good to protect the world, companies are avoiding doing bad because of the dire consequences. As companies are becoming wiser when it comes to their decisions, more attention is going to be put on the ESG sector.
A lot of companies have suffered heavy losses because of scandals recently. The rest are taking note of their mistakes and are taking steps to ensure that they don’t make the same ones.
Is It Too Late To Invest?
It seems like it’s been around for a long time but the truth is that the ESG sector is still relatively young. It has performed exceptionally well over the last couple of years but that doesn’t necessarily mean that you’re late to jump into impact investing. In fact, it’s never too late to do that.
The goal of impact investing is to give the world and its people a better chance. There’s always going to be a need to help others and companies are willing to go the extra mile to make sure that these pressing problems are addressed as soon as possible. Even if the world’s problems are all solved, companies are still going to do their best to do good.
If you want to dive into impact investing, then you can begin by creating your own ESG criteria to rate companies by. It’s a small step toward making sure that you’re supporting the right brands. To help get you started, here’s an article on understanding what impact investing is, as well as an article on how you can get started.