10 Key Drivers Behind the Growth of ESG
ESG investments are always being talked about. But, it’s not always clear why there is so much change in the investing landscape.
Global responsible investments have increased by more than 34 percent over the past two years to more than $30 trillion.
More investors are thinking in terms of ESG investing than ever before.
However, have you ever wondered anything about the drivers behind ESG investing? From global warming to demographic changes, there are so many factors behind this investing trend.
Check out the reasons why the principles of responsible investment are becoming mainstream below. Let’s get started!
1. Good Governance is Always Important
Investors aren’t necessarily concerned by ESG investing for its own sake. They want to ensure they get a return on any investments.
Imagine if the political system in a country breaks down? What if there are any significant constitutional changes? This could undermine their investments.
Following the financial crisis of 2007-08, investors are more aware of the importance of effective corporate governance.
2. Further Government Regulations
Governments and investors are both considering the impact of ESG risks. Investors are concerned by the pressure on governments by the public to change course on a wide range of issues.
This includes German Chancellor Angela Merkel’s decision in 2011 to shut down nuclear power plants across Germany following the Fukushima disaster.
ESG considerations allow investors to better predict when this kind of move could affect their investments.
3. There Is a Climate Emergency
Scientists at the UN have declared that there is “no doubt left” regarding the fact that human behavior is causing climate change.
There are numerous ways to mitigate the worse consequences of climate change. This includes the international treaties, such as the Paris Climate Agreement.
According to climate experts, we need to keep rising global temperatures below two degrees to prevent catastrophic climate breakdown.
As governments implement environmental regulations and adapt to climate change, private investors are waking up to the importance of sustainable investments to withstand financial risks.
4. Transition to Renewable Energy
Energy markets are changing rapidly. As fossil fuel energy sources are quickly being replaced by renewable energy and clean technology.
The changing dynamics of the energy market are causing investors to shift their portfolios to reflect this trend. By the year 2040, it is expected that renewable energy will comprise the primary energy resource.
As oil and coal are declining, natural gas, solar and wind energies have emerged as cheaper and more reliable sources of energy.
5. Rapid Technological Developments
Whether it’s AI, driverless vehicles, smart meters or virtual reality, there are a number of technologies that are changing consumer behavior.
As business operations and consumer habits shift, organizations are rushing to adapt to the changing landscape.
Corporations with resources and knowledge will be able to adapt and take advantage of emerging opportunities. Others are putting their investors at risk of losses.
6. Growth of Public and Private Partnerships
In politics, there has always been a great debate about what the public sector should take care of and where the private sector should step in.
But, Public and Private Partnerships (PPPs) have turned this on its head. Yet, up until now, PPPs have always been a small part of the world’s global spending.
However, there is a growing realization that PPPs have the potential to address social and economic challenges.
Private investments have the capacity to be a catalyst for positive transformations. They could help to deal with numerous environmental problems as well.
7. The Cultural Consequences of Social media
Nearly everyone uses social media today. From 2005, when only 5% of the U.S. population were social media users, today’s population has around 80% social media users.
The global growth of social media could have numerous cultural and social consequences of investors.
As people can interact online across borders and exchange norms, this may have knock-on effects for consumers and voters across countries.
From increasing regulations around the environment to unsettling stable democracies, there are many risks for investors here.
8. Changing Demographics Across the World
There are estimated to be more than 10 billion people on Earth by the year 2050. But, the big news is that almost one-quarter of people will be over the age of 65.
As life expectancy continues to grow in developed countries, the Earth’s natural resources have to deliver for an even bigger population.
Climate change won’t only affect our children and grandchildren. But, rather ourselves in a less capable and older state.
9. Continued Globalization of the Economy
Global corporations are increasingly embedded in the world economy. The supply chains and consumers are usually spread across continents and countries.
That’s why when companies can quickly be damaged by investors are pull out when news of everything from mass deforestation or child labor is reported.
10. Millennials are Taking Over Baby Boomers
There is also a generational shift happening. There are now over 75 million millennials in the U.S. and many more around the world.
As Baby Boomers are replaced by the younger generations, there is a growing shift of social and political priorities.
This includes the growth of sustainable finance and issues, such as social inequality, rising to the top of the political agenda.
Discover More About ESG Investing
We’re hearing a lot about ESG investing today. However, it’s not always clear what is driving the growth in the principles of responsible investment.
There are numerous trends and drivers that are changing the way investors see what they do. This includes global problems, such as climate change and social inequality.
But, there are also opportunities for investing in growth sectors, such as renewable energy and emerging technologies.
If you want to discover more about ESG investing, check out everything you need to know on our website or get in touch.