Investment trends in a decarbonised world
Women are more willing than men to accept higher risk or lower returns from investments in companies who make a positive contribution to the world.
26 November 2021 | Economics
Environmental, social and corporate governance (ESG) issues are material in determining the long run fundamentals of a business and bring about a different approach to investing and alters investment philosophies.
According to Simonis Storm economist Theo Klein, the top ESG criteria for asset managers in 2020 include carbon emissions, anti-corruption, board issues and executive pay. In the past, it used to be baby boomer females and millennials being most interested in sustainable investing, but in recent years it is across the age spectrum.
Sustainable investing has ballooned into a US$35 trillion industry and is expected to reach US$53 trillion by 2025 according to the Global Sustainable Investment Alliance.
This is sizeable compared to the global market capitalisation of gold (US$11.7 trillion) and cryptocurrencies (US$2.9 trillion). This is due to higher demand from both retail and institutional investors. By the end of 2020 in the US, about a third of assets under professional management were invested according to ESG metrics, increasing by 42% from US$12 trillion to US$17.1 trillion between 2018 and 2020.
Klein notes that the above mention trends are influenced by several factors. Firstly, the Paris accord adopted in 2016, growing number of asset managers signing on to the United Nations Principles for Responsible Investment, protests and social justice movements by activists globally.
It is further influenced by wealthy and socially conscious women taking the lead as investors and corporate executives in sustainable investing as well as studies suggesting that investors do not have to sacrifice investment returns by investing in sustainable companies or stocks.
Noteworthy is that overall women are currently richer than they have been ever before. Women are more willing than men to accept higher risk or lower returns from investments in companies who make a positive contribution to the world according to a study by RBC Wealth Management. Historically, women tend to invest according to their values and in investments that are likely to benefit their community and the planet compared to men, Klein pointed out.
Another trend observed amongst retail investors is among pensioners. Retirees need investment income that will last longer. Having experienced effects of wildfires, deep freezes, hurricanes and flooding, some retirees have altered their investment philosophies in the United States (US) and the European Union (EU).
Retirees are convinced that fossil fuels do not have a long-term future, they choose to reduce exposure to stocks related to or highly dependent on fossil fuels and opt for green economy focused stocks. This might become sentiment or philosophy amongst Namibian pensioners in the near future, Klein said.