Sustainable investing has been quietly gaining momentum; but what was once considered a niche investment, looks set to come of age in the year ahead.
For some, 2020 may be a year best forgotten; but undeniably it has left a lasting legacy. From the silence of self-isolation to passionate protests worldwide – the crisis has sparked a collective demand for real change.
At its peak, pandemic-induced volatility shook many investors. But after the initial sharp movements, it may also have longer-term ramifications on the way we invest our money and make a difference with our investments.
Last year was especially significant for sustainable investing. Amid a period of rapid social change testing society’s resilience, sustainable investing was very much at the forefront of investors’ minds, enjoying an unprecedented level of attention and popularity.
Concern about the long-term sustainability of investments is not a new thing. Taking an interest in a company’s so-called environmental, social and governance (ESG) credentials has long been a proxy for gauging an organisation’s overall corporate responsibility. But 2020 has helped turn what was once relatively niche strategy – considered the domain of ‘do-gooders’ – into one of the most significant developments on the investment landscape in recent memory.
A record-breaking year
In the past, some investors may have had concerns over sacrificing performance when choosing ESG funds relative to funds that do not incorporate these factors. However, with a growing understanding of this universe, there is now more focus on the potential of ESG funds to deliver a sustainable performance over the longer term. This is because businesses with strong ESG credentials generally have fewer risks to their long-term business models.
The figures speak for themselves. European sustainable funds broke new records in terms of inflows, assets and product development. Globally, inflows into sustainable funds were up 14% in the third quarter of 2020 to $80.5 billion.
Tightening regulation for investors’ benefit
Importantly, investors are driving this trend as much as regulators are. Many asset managers find themselves having to act decisively to meet investors’ demands for greater choice and transparency in sustainable investing. Alongside this, increasing regulatory requirements are changing the way managers invest and report on the products they offer.
The Sustainable Finance Disclosure Regulation (SFDR) came into force on 10 March 2021 to impose ESG disclosure and reporting requirements for a wide range of investments firms and fund managers.
The EU’s landmark rules mandate greater transparency for ESG funds. This forces businesses to be transparent about everything from their environmental impact to how they treat their employees.
These developments contribute to the momentum of ESG within the broader investment environment, to help improve outcomes for long-term investors. Read more about London & Capital’s approach to ESG-aware investing here.
If you would like to discuss anything related to London & Capital’s ESG-aware approach to investing, please get in contact here.
