Page 9 - Leisure Living Magazine: June 2020 Edition

The Remarkable Rise Of ESG Investing
By Brian C. Duttera, True Alpha Wealth Management, brian@truealphawm.com, www.truealphawm.com
Responsible investing is rising in popularity and is the integration of Environmental, Social, and Governance factors – hence the ESG acronym – into investment processes and decision-making. ESG factors cover a broad spectrum of issues that traditionally are not part of financial analysis, yet may have economic relevance for investors.
ESG factors might include how corporations respond to climate change, how good they are with water management, how effective their health and safety policies are in the protection against accidents, and
how they treat their workers.
The History of ESG
ESG factor investing
has grown in popularity
since 2005 with the
landmark study entitled
“Who Cares Wins.”
Today, ESG investing
is estimated to be the
primary factor style
for over $20 trillion in
assets, and its rapid growth builds on the Socially Responsible Investment (SRI) movement that has been around much longer.
But what explains the remarkable rise of ESG investing, and what does this mean for the future?
Why ESG Matters
Cynics may argue that responsible investing is just a fad. But a closer look at the forces that have driven the movement over the past 15 years suggests otherwise.
First, technology and the rise of transparency are here to stay. Gathering and processing data will become even easier and cheaper. Smart algorithms will increasingly allow for better interpretation of non-traditional financial information.
Second, environmental changes, in particular climate change, will, with scientific certainty, put a growing premium on good stewardship and low carbon practices as natural assets will likely appreciate over time.
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Finally, people everywhere (because of advances in technology) can now do so with ease. ESG investing allows them to express their values to ensure that their savings and investments reflect their preferences, without compromising on returns.
The Rise of ESG
The big challenge for most corporations is to adapt to a new environment that favors smarter, cleaner, and healthier products and services. In doing so, they can leave behind the dogmas of
the industrial era when pollution was free, labor was just a cost factor, and scale and scope were the dominant strategies.
Today’s use of ESG
“Climate change” is identified as the most critical ESG issue considered by money managers in asset- weighted terms; the
assets to which this criterion applies more than doubled from 2016 to 2018, reaching more than $3.0 trillion.
Further, the report found that “conflict risk” and “human rights” are the leading social criterion.
Continuing a trend that began years ago, criteria related to climate change and carbon emissions remained the most critical environmental issue for these institutions.
The bottom line: ESG is Here to Stay
ESG investing has matured to the point where it can significantly accelerate market transformation for the better. As corporations and investors experience growing influence and power, their actions and decisions increasingly shape the future. Provided that political framework conditions based on openness and global rules do not deteriorate further, market- led changes will act as a force for good on a truly massive scale.
June 2020 LeisureLiving | 9