Bloomberg Media's Sustainable Future Study reveals where the sustainable investment landscape is headed next
ESG assets will hit $50 trillion by 2025, representing more than a third of the projected $140.5 trillion in total global assets under management, according to Bloomberg.
Bloomberg Media's Sustainable Future Study, sponsored by Mubadala, delivers a comprehensive global view of the sustainable investing landscape, and what to expect by the end of the decade, based on our survey of nearly 800 business decision makers.
Globally, our research finds broad alignment across global markets that sustainable investing is a high priority for fund managers today and in 2030. Around the world, fund managers are convinced of the link between ESG and a company's shareholder value, and this link is a key input for investment decisions.
Global business leaders across all industries anticipate strong growth in ESG assets, and they are making investments in ESG with the same bottom line-driven focus as their non-ESG investments. A resounding 71% of global business leaders believe that, “Eventually, no investment decisions will be made without considering ESG.”
The vast majority of respondents see ESG as an important consideration when making investment decisions in their own organizations, even among non-ESG fund managers.
While the study finds great enthusiasm for ESG investments, the lack of defined standards to assess performance is a barrier to investment in this sector. This focus on clearly defined standards marks a significant change in the sustainable investment landscape, where, historically, high cost and fees had been the main barriers to investment.
According to the study, 32% of all respondents believe that renewables and clean energy yield the highest ROI today, and the same number believe this will be true for 2030—the highest value for any investment area.
But investors may be too focused on the most obvious ESG investments, and could be missing an opportunity to take a more holistic approach to sustainable investing.
At 27%, ESG fund managers see the highest ROI opportunity today in Financial Services, compared to 10% of Chief Sustainability Officers, 7% of government officials, and 13% of non-ESG fund managers.
Venture capital leaders stand out for their confidence in Life Sciences Tools and Services (16%) and Mobility (10%).
When we break down ESG and evaluate which element contributes most to shareholder value, Environmental carries the bulk of the weight today, and Renewables and Clean Energy receives the highest portfolio allocations.
BloombergNEF estimates that $2.1 trillion of investment is needed in the energy transition from 2022-25, nearly three times last year’s level. In addition to renewable energy projects, this figure includes electrified heat, energy storage and nuclear power.
But while the world feels dominated by the Environmental factors in ESG investing today, our study shows increasing consideration of the Social factors that evaluate a company’s impact on customers, employees, local communities and society in general. By 2030, many investors believe that Social will contribute more to shareholder value than Environmental.
The global momentum behind ESG contributing to shareholder value is undeniable. ESG is a decision-making factor across all investments, not just ESG-oriented investments, and investors need to widen their view of sustainable investing. As our study shows, there are many opportunities for increased ROI in sectors not traditionally associated with sustainability. Any organization or country that ignores ESG risks being left behind.
Historically, ESG investors favored funds that stayed away from industries perceived as contrary to ESG stated goals, as well as those investing in companies that took measures to clean up their act. Perhaps the future lies in a more focused version of ESG principles, one that resembles environmental risk management.
The success of ESG investing depends in some part on government policy. If legislators make a law which rewards ethical investing decisions, the funds can benefit greatly. A good example is policies which incentivise electric car purchases.
In the face of political opposition in the US and market uncertainties, a recent Bloomberg Intelligence survey suggests that the global investment community remains steadfast in its commitment to environmental, social, and governance (ESG) principles.
ESG risks, when poorly managed, can have a significant impact on a company's reputation, finances and long-term viability. The effect of these risks can range from fines and legal penalties to loss of customer, employee and investor confidence.
Many point to the prevalence of greenwashing, which is when companies exaggerate the environmental benefits of their actions. Other criticisms focus on the way fund managers rank companies by how they're performing on ESG factors.
However, there are also some cons to ESG investing. First, ESG funds may carry higher-than-average expense ratios. This is because ESG investing requires more research and due diligence, which can be costly. Second, ESG investing can be subjective.
The term ESG first came to prominence in a 2004 report titled "Who Cares Wins", which was a joint initiative of financial institutions at the invitation of the United Nations (UN).
This means that it's hard for investors to compare companies and funds from an ESG standpoint. Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments.
Why have some Republican officials criticized ESG investing? Republican politicians have criticized ESG because they say they consider it an effort to use financial tools for the purpose of advancing liberal political goals.
ESG remains a fatally flawed investment paradigm. It is premised upon unreliable data and the dangerous, highly misleading idea that tilting away from certain shares or bonds will fundamentally alter corporate behavior, improve risk-adjusted returns, and result in better social and environmental outcomes.
Rather, this could simply reflect a changing climate and a desire by companies to avoid any controversy associated with ESG investing. The money flowing out of E.S.G. funds has gone from a trickle to a torrent as investors sour on a sector hit by greenwashing concerns, red-state boycotts and boardroom debates.
There is another reason the ESG and DEI bubbles are bursting: The economic case for them was never strong. Investors were promised ESG funds that would produce higher returns by avoiding certain investments, but they haven't always outperformed the market.
The survey found that, of the 98% of investors surveyed who assess ESG, 72% carry out a structured review of ESG performance, compared with just 32% in the previous survey conducted two years earlier. Moreover, many of those who currently use an informal approach, plan to move to a more rigorous regime (39%).
Financial sector companies worth $10 billion or more collectively showed the biggest drop in ESG-related statements year-on-year in the third quarter of 2023, down 20%. U.S. Republican politicians have targeted banks and asset managers that support the transition away from fossil fuels to cleaner forms of energy.
In the world of investment, Environmental, Social, and Governance (ESG) investing has emerged as a powerful force driving change and reshaping investment strategies. According to an ESG report from Bloomberg Intelligence (BI), global ESG assets are projected to exceed $40 trillion by 2030.
Bloomberg Media's Sustainable Future Study reveals where the sustainable investment landscape is headed next. ESG assets will hit $50 trillion by 2025, representing more than a third of the projected $140.5 trillion in total global assets under management, according to Bloomberg.
Assets in dedicated ESG funds could grow from US$8 trillion today to as much as US$30 trillion by 2030. The industry would thus play a vital role both in the allocation of capital towards a more resilient economy and in addressing sustainability challenges.
Looking ahead, we expect sustainable debt issuance to be flat in 2024, as market uncertainty, upcoming elections, and anti-ESG rhetoric continue to create choppy waters, particularly for new participants.
Introduction: My name is Francesca Jacobs Ret, I am a innocent, super, beautiful, charming, lucky, gentle, clever person who loves writing and wants to share my knowledge and understanding with you.
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