Invest
Why the ESG investing trend is poised to continue
The amount of money invested in responsible investment strategies grew 25 per cent in the two years to 2016, and according to Pimco, this trend will likely carry on in the coming years.
Why the ESG investing trend is poised to continue
The amount of money invested in responsible investment strategies grew 25 per cent in the two years to 2016, and according to Pimco, this trend will likely carry on in the coming years.
Environmental, social and governance (ESG) investing – investing based on responsible, eco-friendly and ethical principles – has become increasingly popular in recent years, Pimco says.
The company’s head of ESG portfolio management, Alex Struc, said ten major factors are driving this growing popularity, adding that these factors show little sign of receding in the near future.
These drivers include:
The systematic importance of good governance
Mr Struc said investors are more aware of the impact bad governance can have for the broader financial system in the wake of 2008’s financial crisis, meaning governance practices are subject to higher levels of scrutiny.
“Improving corporate governance is increasingly a goal for regulators and for fixed-income and equity investors through active ownership,” he said.
Public-private partnerships are becoming more common
Financial co-operation between government and business began as a means of addressing housing and infrastructure concerns, but Mr Struc said these partnerships have now expanded to include social and environmental issues too.
Growing awareness of climate change
Mr Struc said climate change is now “universally understood and almost universally acknowledged” as a concern, and both investors and businesses are increasingly looking for ways to delay or diminish its impact.
“Mitigation techniques include international agreements such as the COP21 Paris agreement, which aims to keep the rise in world temperatures below two degrees, and private initiatives such as sustainable investment portfolios and more disclosure of climate-related financial risks,” he said.
The energy market is transforming
“Well-telegraphed supply and demand drivers are shifting the dynamics of the oil market,” Mr Struc said, adding that natural gas is now cheaper than coal and renewable energy sources are becoming “cheaper and more scalable”.
Demand and consumption trends are changing
Online retail, automated digital advice and driverless cars are just some examples of how technology is shifting the way in which consumers buy and use products, Mr Struc said, and companies will need to adapt to meet this or risk losing out – and dragging their investors with them.
The influence of social media
The ability for people from all walks of life to communicate with one another regardless of border or other barriers gives it “the potential to alter the cultural blueprint of countries”, Mr Struc explained.
This can lead to changing consumer attitudes and behaviours, a shift in election patterns and demands for new or different legislation.
Life expectancies are increasing
The United Nations predicts that by 2050, there will be 2.3 billion people in the world over the age of 65, Mr Struc said.
“With average life expectancy rising in developed countries, sustainability issues will affect not only our children but also our older, less-capable selves,” he said.
“Climate change, income inequality, healthcare and poor governance are increasingly personal as they directly affect financial security in retirement.”
Demographics are changing
Millennials and members of Generation X are beginning to take the reins from Baby Boomers in business and politics and, as a result, the political and financial landscape is beginning to change.
“The newly formed French government is an example – half of its members are women,” Mr Struc said.
“Younger generations are driving the fast growth of the ‘green bond’ market and the field of sustainable finance in general.”
Regulations are benefitting some markets
According to Mr Struc, the rise of ESG investing has already begun to have a tangible impact in some countries by driving new regulations and affecting credit fundamentals.
“Examples include the shutdown of nuclear power in Germany, the Supervisory Review and Evaluation Process in Europe, which governs subordinated financial debt, and France’s mandatory reporting of climate risk, which raises the bar for financial institutions,” he explained.
Value chains are global
Many large corporations now have global value chains which, when not governed properly, can “prove costly”, Mr Struc said, noting that investors “can be quick to punish companies for child labour practices, human rights issues, environmental impact and poor governance.”
The combination of these ten driving factors means ESG investing’s popularity is likely to thrive in to the future and continue to influence the ways businesses and investors operate.
Property
How first home buyers can take advantage of the budget
While the 2021 budget included a number of measures relevant to property investors, an expert has questioned whether any of them could yield an impact on rising buyer imbalances and reduced liveabilit...Read more
Property
First home buyers at the frontline of Frydenberg’s charm offensive
There are few surprises to be found in this year’s federal budget, with Australian property investors and first home buyers set to benefit from new and expanded measures. ...Read more
Property
May could be the beginning of the end for housing pricing boom
Experts have suggested that recent growth in prices could mark the peak of the pandemic bounceback for the housing market. ...Read more
Property
Treasurer announces home loan assistance packages for single parents
The federal government has announced a new scheme targeted at helping single parents with limited deposits into the housing market. ...Read more
Property
Australian housing market now valued at $8 trillion
The Australian dwelling market has reached a new record high, with the total value of residential real estate breaking the $8 trillion mark for the first time. ...Read more
Property
A generation of Aussies could be locked out of the housing market as prices boom
A booming property market is set to see a generation of younger Australians priced out of the market, a shadow assistant minister has said, challenging the narrative that younger people are failing...Read more
Property
Is the property market reaching its summit?
While home values continued to rise across the country in April, current trends are pointing to the possibility that the property market has peaked, a new report has revealed. ...Read more
Property
Wait, so it’s definitely cheaper to rent than buy?
New research has revealed that there are indeed dwellings in Australia that are cheaper to buy than rent (57 per cent to be exact), but where are these dwellings located and are they liveable? ...Read more
Has the property market reached its peak; Biden’s climate summit and our sharemarket, and the upcoming budget
Listen now
Is the market overheating; should ETFs take your fancy, and what’s happening to the low and middle income tax offset?
Listen now
Home values up 30% (or are they); NFTs taking the world by storm, and why Keating thinks Aussies will be ‘poor’ in retirement
Listen now
Raging floods, the tech stock bubble and the ongoing SG debate
Listen now
Property
How first home buyers can take advantage of the budget
While the 2021 budget included a number of measures relevant to property investors, an expert has questioned whether any of them could yield an impact on rising buyer imbalances and reduced liveabilit...Read more
Property
First home buyers at the frontline of Frydenberg’s charm offensive
There are few surprises to be found in this year’s federal budget, with Australian property investors and first home buyers set to benefit from new and expanded measures. ...Read more
Property
May could be the beginning of the end for housing pricing boom
Experts have suggested that recent growth in prices could mark the peak of the pandemic bounceback for the housing market. ...Read more
Property
Treasurer announces home loan assistance packages for single parents
The federal government has announced a new scheme targeted at helping single parents with limited deposits into the housing market. ...Read more
Property
Australian housing market now valued at $8 trillion
The Australian dwelling market has reached a new record high, with the total value of residential real estate breaking the $8 trillion mark for the first time. ...Read more
Property
A generation of Aussies could be locked out of the housing market as prices boom
A booming property market is set to see a generation of younger Australians priced out of the market, a shadow assistant minister has said, challenging the narrative that younger people are failing...Read more
Property
Is the property market reaching its summit?
While home values continued to rise across the country in April, current trends are pointing to the possibility that the property market has peaked, a new report has revealed. ...Read more
Property
Wait, so it’s definitely cheaper to rent than buy?
New research has revealed that there are indeed dwellings in Australia that are cheaper to buy than rent (57 per cent to be exact), but where are these dwellings located and are they liveable? ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
