ESG Investing

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What's going on?

A new report this week from Goldman Sachs examines exactly what stocks “sustainable” funds pick – and it seems investors increasingly want to use their powers for good.

What does this mean?

Since 2016, more than $8 trillion has flooded into “ESG” funds, which make investment decisions based on environmental, social, and governance factors. Their most popular investment is, unsurprisingly, one of the world’s biggest firms: Alphabet.

But investment bank Goldman looked into which companies are relatively popular compared to their size: the stocks that ESG funds favor more than other investors. It found there’s a big focus on “impact”: companies actually trying to make the world better, as opposed to doing the same old stuff in a slightly more ethical way. Foremost among these is French firm Suez, which builds wastewater treatment facilities.

Why should I care?

For markets: Joining the Justice League.
Impact investing’s growing popularity could be explained by an increased desire to back positive planetary change. And investors may make more money by doing so. Impact-focused companies have huge growth potential: as water becomes more scarce, for example, we’ll likely need more recycling treatment plants. In order to meet the Paris Agreement’s climate change targets, it’s estimated that $7 trillion a year will need to be spent on upgrading infrastructure – money that’ll flow to those companies offering sustainable solutions.

For you personally: On my world it means hope.
If you’re one of the many people drawn to sustainable investing, you might have assumed you were already funding impact like this. But that’s not necessarily the case: most ESG assets are in “exclusionary” funds, which merely avoid damaging sectors like tobacco and weapons. One reason for this disconnect is that there are currently no universally accepted definitions of what makes a fund “sustainable” or “green”. That’s set to change, however: the European Union is shortly planning to regulate how ESG funds brand themselves.

Originally posted as part of the Finimize daily email.

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