Rising investor demand for ESG in their portfolios

  • Paris Agreement: The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 parties at the Conference of the Parties (COP) 21 in Paris, on 12 December 2015 and came into force on 4 November 2016. Following the agreement, a number of governments defined nationally determined contributions (NDCs) to achieve the targets. They also encourage and offer more benefits to those investing in sustainable or environmentally friendly businesses, creating a niche opportunity for investing in ESG. This has been driving significant demand for ESG products in recent years.
  • Pandemic: In November 2019, the world became aware of the end of the Bull Run and panicked due to the outbreak of the pandemic that resulted in the biggest market crash in March 2020 as global indices fell c.40%. The Dow Jones Industrial Average fell nearly 3,000 points on 16 March 2020, the largest single-day drop in US stock-market history to date, when the pandemic was declared a national emergency in the US. People are now more conscious about their health and the environment, driving growth of ESG investment products, which is likely to continue post-pandemic.
  • Sustainable returns: Increasing awareness of the environment and the need for sustainable investment in environmentally friendly businesses are also driving the trend in ESG investment.
  • Sustainable Finance Disclosure Regulation (SFDR) is an EU regulation that came into effect on 10 March 2021 to govern the provision of financial products and services in the EU and banks’, insurers’ and fund managers’ commitment to sustainability. The SFDR aims to inject EUR1tn into green investments over the next decade to address data inconsistency in the climate-related information provided by financial-market participants. The SFDR also focuses on preventing greenwashing (financial firms publishing inaccurate data on environmental commitments, saying an investment is fulfilling its environmental, social and governance commitments while being closely aligned with companies emitting substantial amounts of carbon. Implementation of the SFDR would provide an accurate picture of ESG investment.
  • In the US, President Biden is working closely with departments/legislative bodies to implement regulation of sustainable investment to limit climate change and enhance carbon neutrality. Asian countries are also aggressively setting targets in line with the Paris Agreement, implementing new ESG-/sustainability-related regulation. The MSCI 2021 Global Institutional Investor Survey showed that 79% of the investors surveyed have increased their ESG investments in Asia Pacific.

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We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/

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Acuity Knowledge Partners

Acuity Knowledge Partners

We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points. https://www.acuitykp.com/

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