Here’s an eye-popping stat for you: Over the past two years, more than $1 trillion has been invested in ESG funds — the ones that screen for good environmental, social, and governance business practices.
Yes, trillion. $649 billion of that went in during the first 11 months of 2021. Of all the money invested in funds worldwide, 10% of it is in ESG funds specifically. And Bloomberg estimates that ESG assets are on track to hit $50 trillion by 2025.
It’s safe to say that investors want their investments to be used for good.
But is all that money (and demand for ESG options) really moving the needle? After all, greenwashing is a growing issue, for the things we buy and the things we invest in. And even if it is, does shifting to ESG investments mean you might have to sacrifice healthy returns? It can be tough to gauge ESG’s growing, long-term impact clearly, beyond a random headline or stat here and there.
So we’ve collected a few of our recent favorites in one place for you. (Welcome!) Here are 11 🔥🔥🔥 developments that demonstrate how ESG is starting to change things — from the market level all the way down to individual businesses with big influence.
All 13 ESG funds accessible to American investors that follow broad, diversified sets of comparable US stocks outperformed the S&P 500 in 2021. (Translation: They earned better returns than the stock market’s overall average.)
While Europe has historically led the ESG investing charge, investors in the US now hold $17 trillion of ESG assets — roughly half of the global total.
Finally, a big move at the policy level: The SEC is poised to adopt a new rule that would require companies to publicly disclose the environmental impact of their business. That transparency “would hold companies accountable for their role in climate change, and give investors more leverage” to pressure companies to scale back their climate-unfriendly practices. Polluters, you’re on notice.
At least one major packaging company is shifting their manufacturing output toward paper packaging and away from plastic. They’re betting that, with the increase in interest in ESG, the demand for a greener supply chain (including, of course, packaging) is about to grow.
One of the largest agricultural companies in the world just decided to issue its first sustainable bonds in order to ensure it can meet its ESG standards. The revenue from the bonds will be used to fund the company’s environmental and social programs, especially sustainability pledges and initiatives for socioeconomic advancement.
This year, more than 20% of venture capital investors on Forbes’ annual Midas List — which ranks VC investors and their success — serve on at least one board where the company has “set aside equity to fuel long-term social impact efforts.” (Translation: More and more of the “best” VC investors are pushing the companies they invest in to adopt ESG standards.)
Some of the biggest pension funds, like the California State Teachers Retirement System, are leaning on the companies they invest in more than ever, citing not ethics, but risk management and performance as their motivation.
ESG priorities are strongly influencing companies’ decision-making in mergers and acquisitions. If a potential acquisition doesn’t help a company meet its ESG standards, particularly when it comes to reducing its carbon footprint, that company is more likely than ever to pass on the opportunity. Apparently, 2021 saw nearly 800 “sustainable” M&A deals, up 44% from 2020.
A report released in January found that more and more executive incentive plans now include ESG metrics goals (translation: if the company hits ESG goals, the exec gets paid), and that the majority of US companies are “poised to expand and refine” those metrics in the next year. That’s good news, considering that right now, only “one in five companies (19%) with an inclusion and diversity metric are measuring it quantitatively” and “over half (55%) of inclusion and diversity goals are stated simply as ‘inclusion and diversity’ and do not give any additional details.” Yikes.
Morningstar recently found that ESG is now the third most common type of “model” portfolio, aka one where the decision about what to include or not is based on a set of predefined rules rather than a fund manager’s whimsy. That said, model portfolios are still a small part of the total market — so lots of room to grow. (Not to brag, but our own Chief Investment Officer Dr. Sylvia Kwan weighed in on this article, speaking about Ellevest Impact Portfolios. We’ve got them for members and private wealth clients, btw.)
As proxy voting season starts (aka when a company’s shareholders get to make their voices heard), more and more shareholders are demanding that companies adopt climate and sustainability resolutions. In fact, one analysis found that 21% of the 500+ shareholder proposals submitted so far this year have been climate-related.
TL;DR: Yes, your decision about how and where to invest your money makes a difference.
If you want to learn why,exactly, people still think that ESG standards are more trouble (or more costly) than they’re worth, this Harvard Business Review analysis lays out the faulty logic. And if you want to learn more about investing for impact in general, our quick explainers — on ESG investing, gender-lens investing, and why impact investing is worth it — might be able to help.
Of course, if you’re already sold, you could just become an Ellevest member and invest with an impact portfolio, or reach out to an Ellevest Private Wealth advisor about building a portfolio that aligns with your values today.
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