ESG Investment Trends for 2021

We've seen an established, upward trend in people making informed choices from a sustainable perspective, to meet their personal or business goals.

Whether it’s in the way we live, shop, eat and even travel – this is becoming part of our everyday. Alongside this shift, we are also seeing people starting to change how they invest their money, contributing to the rise of “ethical investing”. People are naturally deterring, at both the corporate and individual level, from the established investment norms they once knew, and are more invested in values, which align to their personal and ethical goals.

But when it comes to adding to one’s investment portfolio, there’s a trend reflecting financial investments that’s really getting some attention. Where people may have traditionally invested in the stock market, say perhaps in a sector they are interested in (and may continue to do so), they are also increasingly aware of exactly where their money is going. The risk and reward investment assessment we’ve seen or have become accustomed to will shift to ‘risk, reward and impact’ – and it’s already taking shape.

Why is ethical investing so appealing and to whom?

We believe ethical or value-based investing is accessible to pretty much anyone and that will naturally increase the investment pool. Here is the immediate appeal. A recent study concluded that sustainable investments can be up to 27 times more impactful on a person’s carbon footprint than switching to cleaner forms of transport, travelling less or reducing meat intake. So why wouldn’t people want to invest in this way?

We’ve seen many start-up climate solutions or ethical investment platforms aimed or positioned towards VCs as you might expect, but in actual fact, they are just as, if not more, accessible to the everyday or amateur investor. Ethical investing matches the overall goal of living more sustainably. We expect to see this appeal among peers, colleagues and even friends, perhaps through word of mouth or fairly informal settings where wider climate goals may be the topic of conversation. As a result, consideration of ethical investment platforms can be discussed freely but more importantly, among those who are genuinely interested in the climate and what the future holds.

It is important to ensure that ESG is not just the label stamped onto a pension fund to make you feel better about where your money is being put to work.

ESG – just a trend?

It’s worth clearing up a few common misconceptions when it comes to discussing ESG. When you’re in this environment, pretty much on a daily basis, there can be a lot to take in. Providing some clarity to misconceptions and trends helps to bring the impact of ethical investing to the forefront. It is important to ensure that ESG is not just the label stamped onto a pension fund to make you feel better about where your money is being put to work. The trouble is up until now, too often ESG funds have been quite passive, aiming only “to avoid doing bad” or in the worst examples, being used to overstate sustainable credentials (often called greenwashing). We think this trend will really start to change during 2021, as this becomes more mainstream and people will become more conscious of the damage that ‘greenwashing’ can do.

Increasingly, ESG is a buzzword and the string of words associated with it has a number of interpretations or connotations. While we can expect to see many positive and growing trends appearing this year in relation to ESG, we also need to address the misconceptions.

Misconception number one – ESG is largely being discussed in the professional investment sector but it doesn’t necessarily always need to be. Employers and business owners want to be more ethical and can align their CSR with ESG ideals. This adds a range of commercial benefits to the business including improved brand perception, quality and loyalty. There can be individual or employee options too. Charm offers businesses the ability to group their capital into dedicated projects that mitigate climate change and share the impact they generate transparently across the entire organisation.

Misconception number two and it’s a simple one – there is absolutely no pressure to invest big but there is a pressure to start now. Organisations don’t need to overhaul their investment strategies overnight. Achieving sustainable goals can be part of an ongoing journey rather than in one go, and even the simplest of steps can be taken – as long as they are followed through. Nor should climate agendas be used as a marketing ploy. The danger is then not being able to follow through and this is more damaging at a reputation level, which has been seen in a number of high-profile examples across 2020.

Finally, our third misconception – it may be perceived that rewards are lower in ESG but it’s proving not to be the case. A recent article in the Financial Times claimed that ‘majority of ESG investments will outperform the wider market’ in the next decade. Close to six out of 10 sustainable funds delivered higher returns than equivalent conventional funds over the past decade, according to a study that undermines claims that investing based on environmental, social and governance principles hampers performance. The definition of ‘reward’ is shifting too. While there are financial gains, what is more apparent now is the intrinsic benefit that ethical investing offers.

What is the future of ESG?

We’ve talked about ESG as a trend but really and truly when it comes to ethical investing – this is only just getting started, there is a lot more to come. This year, we expect to see people being far better informed, leading to improved views and discussions that will result in conscious investment decisions.

This increased transparency will remain at the forefront of ethical investing, allowing organisations and people to match their values or passion with their investment. Charm Impact supports projects led by local entrepreneurs in Asia and Africa. Open investment opportunities relating to projects, regions or communities are available for choices to be made. Ethical investments made now are for the future and what will be left behind, the appeal and accessibility of this route applies to just about anyone.

About Charm Impact

Charm was established to help mitigate two of the greatest challenges facing our generation: combating climate change and achieving universal access to clean and affordable energy. Our mission is to empower entrepreneurs in some of the toughest environments to scale their innovative solutions and make a meaningful difference for the world.

Charm was co-founded by Gavriel Landau, a former energy and financial services technology consultant and Bethany Larsen, former social finance professional.

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