What will continue to drive the ESG phenomenon in 2020?
Environmental, social, and governance (ESG) investment have gone from phenomenon to part of our new normal. From moonlighting in the periphery since the 1970s, it has all but exploded in the last three years. According to a report by the Global Sustainable Investment Alliance, at least $30.7 trillion is now held in sustainable or green investments, up 34% since 2016. “These money flows account for one-third of the tracked assets under management,” according to Bloomberg.
Three Things Driving ESG Growth.
The growing Influence and Impact of Millennials
About 50 percent of the world’s population is under the age of 30, and the values of this generation are set to become the new norm. Millennials are the largest living generation in history and are coming to full maturity as investors. Sustainability, clean energy and investing matters to the millennials, perhaps more so than any age before, and they want investment opportunities that address it. According to research by JPMorgan Private Bank, 86% of millennials — a generation set to inherit $30 trillion from their parents over the next 30 years — say that sustainability is an investment priority.
Big Name Adoption
When global marque institutions lead, they create followers and also a supply response from asset managers looking to gain access to the trillions of dollars controlled by this institutional elite. Increasingly, institutional and individual equity investors are linking ESG information, a company’s purpose, values, and strategy, and performance.
The capacity of new technology to amalgamate, collect, and analyze vast amounts of data is supporting the rise in ESG investment Technologies that allow firms to manage sustainability, and related data are becoming more common. These data sources often include emissions sources, asset footprints, employee health and safety, and diversity targets through the use of surveys, data collection, as well as other methods. These technologies support new reporting standards and ultimately inform the way stakeholders – from shareholders to asset managers – can better comprehend both the location and the impact of their capital.
What does this mean for the Asset Management Community?
The focus on ESG brings opportunities and challenges for asset managers. Today asset managers are under mounting pressure to integrate ESG considerations into their investment approaches. This does not come without challenges.
Some of these challenges include but are not limited to:
- -a complex landscape of ESG focus areas
- -differing expectations from institutional investors
- -the likelihood of new regulation and uncertainty over its form
- -a confusing array of inconsistent ESG data
- -an absence of standard ESG terms, metrics, and reporting frameworks
- -a lack of consensus on the effects of ESG strategies on financial returns
Although the challenges are significant, there is a clear roadmap for asset managers who want to become leaders in sustainable investing. Paramount are the tools to manage your ESG Funds.
Sentry PM is an award-winning cloud-based portfolio management solution that helps manage your ESG funds by using compliance to ensure fund limits and restrictions are met. See Sentry PM for yourself, schedule a demo of our platform today.
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