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Earth Day: Why ESG investing is going from strength to strength

--Story by Brooke DiPalma

Environmental, social and governance-based (ESG) spending is gaining momentum, as companies devote more of their business plans to the concept -- and younger investors increasingly take sustainability into account on where to park their cash.

According to a study by specialist EIS fund OnePlanetCapital, “investors plan to move funds to support companies with a positive ESG rating or impact.” The study predicts that investments within the ESG market will double in 2021 with more than one in 10 (12%) of investors planning to move to ESG related funds.

“ESG is now a key factor for investors when making decisions about their portfolio,” OnePlanetCapital pointed out in the note, research is “suggesting investors are becoming increasingly concerned about global environmental issues such as climate change.”

Billionaire activist investor Bill Ackman, CEO of the $13 billion hedge fund Pershing Square Capital, also recently promoted the importance of ESG investing. In a shareholder letter, the billionaire investor said sustainability is “fundamentally aligned with running a successful business.”

He added: “As consumers and other corporate customers have become increasingly educated on matters of ESG, they have begun to avoid companies that contribute to climate change or do not treat their employees well, while rewarding companies with their business that have sustainable and responsible policies.”

With that increase in demand for ESG investing -- and expected revenue of $1 billion by the end of 2021, according to consulting firm Opimas -- reporting standards are also changing. In early March, the European Union (EU) Sustainable Finance Disclosure Regulation became effective, which imposes sustainability-related disclosure requirements on financial services institutions such as banks, insurance companies, pension funds, and investment firms.

In the U.S., President Joe Biden is also set to roll back a Labor Department rule that took effect on January 12th, 2021, requiring “plan fiduciaries to select investments and investment courses of action based solely on financial considerations relevant to the risk-adjusted economic value of a particular investment or investment course of action,” rather than weighing ESG factors. However, experts say it may take up to 18 months to fully reverse.

Still, Wall Street -- and even the Federal Reserve -- is going all in on sustainability.

According to a report from Bank of America, ESG inflows were up 135% compared to a year ago as of February, with $4 of every $10 going toward global equity inflows.

Video Transcript