Once an under-the-radar radical movement has solidified itself as a frontrunner in investment decision-making
In the age of climate change, conversations about sustainability and eco-friendliness are often at the forefront. Companies, from clothing apparel to grocery suppliers, are marketing their sustainability efforts to appeal to the increasingly environmentally mindful population. But this interest in being eco-conscious in the face of changing climate isn’t just meaningless marketing. Investments are made in a number of industries to reshape the world into a greener one, and according to research, this shift towards sustainability and eco-friendliness has become a pivotal factor in shaping investment portfolios.
(NEW) NUMBERS DON’T LIE
In 2023, Julias Baer published a report that showed just how many investors place importance on sustainability in their portfolios. In Asia, Africa, and Latin America, over 90% of surveyed investors said they find sustainability important in their investment decision-making. In Europe, the number was 83% and 60% for North American investors. According to a report by the Global Sustainable Investment Alliance (GSIA), global sustainable investment assets reached $35.3 trillion in 2020, a 15% increase from 2018. A survey conducted by the Morgan Stanley Institute for Sustainable Investing found that 85% of individual investors are interested in sustainable investing. Additionally, 95% of millennials expressed a strong interest in sustainable investing options. No longer considered a niche concept, sustainable investing has gained mainstream recognition, signalling a shift in how investors assess the long-term viability of a company.
Beyond traditional equities, the financial landscape is witnessing a surge in demand for green bonds and renewable energy investments. The Climate Bonds Initiative reported that the global green bond market reached $1.7 trillion in 2020: a testament to the growing appetite for sustainable investment. Renewable energy, once considered an alternative investment, has become a cornerstone of sustainably aligned portfolios. The International Energy Agency (IEA) projects that renewable energy capacity will expand by 50% by 2024, driven by increased investments in solar and wind projects. Electric vehicle (EV) industry is also booming, with a market size that’s estimated to reach $1318.22 billion by 2028, which follows a 41% increase from 2019 to 2020 (despite the pandemic-induced downturn experienced by almost every other industry.)
And the government is also interested. The US, long thought to be behind developed nations in the green energy field, has made strides in the last years to catch up to the new world, passing a multi-billion-dollar bill that incentivizes green development. US Strategic Metals, LCR’s partner in an EB-5 project, received several hundred million dollars in funding to create a closed-loop, recyclable lithium battery supply worthy of complying with the growing demand for sustainable electric transportation.
One of the driving forces behind the shift toward sustainable investment is the widespread adoption of Environmental, Social, and Governance (ESG) criteria. ESG factors evaluate a company’s performance based on its environmental impact, social responsibility, and corporate governance practices. Investors are recognizing that a company’s commitment to sustainability is indicative of its ability to navigate future challenges and capitalize on emerging opportunities.
According to a study by MSCI, companies with strong ESG scores have outperformed their counterparts with lower ESG ratings, challenging the outdated wisdom that sustainable investment requires sacrificing returns. Instead, the finding showcases that companies embracing sustainability may be better positioned for long-term success, attracting the increasing number of investors who seek both financial gains and positive societal impact.
As the world grapples with pressing environmental challenges, investors are recognizing the need to align their financial objectives with sustainable practices. The data speaks volumes, indicating a clear trend toward the integration of sustainability and eco-friendliness into investment strategies.
The green horizon presents not only a moral imperative but a sound financial strategy. As companies and industries adapt to meet the demands of a changing world, investors who prioritize sustainability are poised to reap the rewards of a more resilient and responsible global economy. Whether through ESG-focused equities, green bonds, or renewable energy investments, the path to a sustainable future is increasingly becoming the road to financial success. The numbers don’t lie – sustainability is no longer just a buzzword; it’s a smart investment.