Top seven ESG investing trends paving the way for the future

Explore the factors that the best ESG investors are considering to generate better returns and build a more ethical portfolio

Over the past several years, the once rare tactic of environmental, social, and governance (ESG) investing has become favored by investors. 

With even more ESG funds predicted to come into fruition this year, current estimates surmise that there are over $330 billion in assets under management in ESG funds. [1]

Join us to explore the ESG investing trends you need to stay on top of to remain relevant and get a strong return on investment (ROI) amid the continually rising popularity of sustainable investing. 

Trend #1: Fighting climate change. 

With carbon dioxide levels in the atmosphere on record of reaching 50% higher than pre-industrial levels for longer than a few days, climate change is an issue that needs to be taken into account by investors interested in building an ethical portfolio. [2]

Individuals, businesses, and governments alike are all part of ongoing conversations about policy changes that need to be made to reduce global carbon emissions.

When it comes to businesses, investors are no longer solely concerned about climate change within the energy sector. Nowadays, business leaders and corporations are acknowledging the ways in which climate change can pose a substantial threat to financial stability as well as how financing is essential to aiding in a societal shift to lower carbon emissions.

Due to this change in mindset, companies are independently committing to making certain amendments to their policies, procedures, and processes to combat the climate crisis in addition to sanctions imposed by the government.

Companies who make these types of climate risk pledges will likely experience an initial economic loss before recovering. If you add one of these companies to your portfolio, keep this in mind as you assess your investment returns.  

Trend #2: Restoring biodiversity.

After the UN Biodiversity Conference concludes at the beginning of May, focusing on restoring biodiversity will be an even more substantial ESG investing trend than it is now. [3]

As they create measures to address the biodiversity crisis and save global ecosystems, the conference is expected to affect businesses, especially those within the food, agriculture, and real estate industries.

Depending on location and function, businesses will need to detail their biodiversity footprint within their portfolios to aid government leaders in accurately planning how to improve biodiversity. 

It’s important for investors to be aware of these changes and consider how they want to be involved in the ongoing biodiversity crisis. 

Trend #3: Diversifying food options.

With younger consumers leading the way in the increase of plant-based diets, the demand for diversifying food options has driven ESG investors to consider opportunities in the food industry. [4]

Investing in vegan and plant-based food companies can be extremely lucrative as many of these corporations have an extremely high net worth that is only expected to rise in value in the future. 

ESG investors can also consider gaining a stake in companies that work in plant sciences to aid in diversifying and developing agricultural ecosystems across the globe. These investments can have a dramatic impact on agricultural businesses aiming to improve sustainability, accelerate growth, and build resilience against the changing climate. [5]

Trend #4: Supply chain issues. 

Another matter that investors are focusing on are environmental and social issues within supply chains.

Corporations are struggling to keep up with demands for transparency and better management of sourcing natural materials within their supply chains. For example, companies remain hesitant to commit to stopping deforestation regardless of it being more easily monitored than other natural capital risks. However, companies will increasingly strive for improvement in this arena as consumers apply more pressure.

In addition to environmental issues, problems within supply chains also reach the social realm as the public asks for improved labor conditions after holes in the system became apparent during the height of the COVID-19 pandemic. 

Supply chain traceability and social risk management will increase in importance as legislation and restrictions push companies to reveal credible human rights monitoring throughout their supply chains. 

If you invest in companies that commit to making these essential environmental and social changes, you’ll be met with a better ROI because the companies that fail to do so will experience drastic depreciation. 

Trend #5: Involvement from corporate boards and government leaders.

Many investors are increasingly putting pressure on corporate boards and government leaders to be more accountable from the top down and increase their focus on sustainability.

Investors are starting to require these entities to understand and monitor ESG issues if they want to maintain their financial benefits. 

One of the ESG issues investors want corporate boards to focus on is genuine diversity, equity, and inclusion initiatives. They’re interested in this matter because the investors understand how a variety of identities, experiences, and viewpoints can propel innovation and growth while increasing their bottom line. 

Trend #6: Sustainable forest management.

Another trend that has risen in prominence in recent years is investing in sustainable forest management—a strategy that aims to enhance the economic, social, and environmental value of forests to benefit present and future generations. 

ESG investors are finding that gaining a stake in sustainable forestry can yield substantial measurable benefits both environmentally and financially that far outweighs investments in conventional timber. 

If you’re interested in exploring this form of timberland management, consider the goals you’d like to achieve through your investment. Some of the most common goals you could evaluate include reducing carbon emission from forestry and land use, improving forest conservation efforts, or increasing the production of sustainable wood and non-wood forest products. 

Trend #7: Inter-industrial growth.

None of the previously addressed ESG trends operate independently of one another; environmental, social, and governance issues are all intrinsically linked.

As you build your portfolio, consider how the diverse set of funds and companies you invest in support one another to ensure you are making the most substantial impact on the causes you care about. 

In addition to feeding your sense of morality, investing in this manner will also help you generate considerable long-term financial revenue. 

To conclude

If you want to be a successful modern-day ESG investor, it’s imperative that you take the risks and opportunities of these trends into account as you build your portfolio. 

Market trends always have a substantial impact on investments, so it’s essential that you continually keep an eye on how they grow and change over the years to reach your unique investment goals.

Looking for support in monitoring your ESG investment initiatives? 

At INFLOR, we can provide you with access to all the information you need to control, analyze, and measure your private social investments with our corporate social responsibility solution. 

With INFLOR Sociall, you’ll be able to facilitate the control of contributions and allow your managers to have access to all the information and reports they need for informed decision making.

For timberland investors, we also have a forest management solution that provides you with the tools and data you need to gain better insights and yield the best results that ensures quality and traceability in all stages of the process.

By combining the powers of our software solutions with the support of our expert team, you’ll have all the tools you need to effectively manage your ESG investments.

Ready to step into the future of corporate social responsibility?
Get started by requesting a demo today. 

Sources:

1: Harvard Law School Forum on Corporate Governance | ESG: 2021 Trends and Expectations for 2022

2: Carbon Brief | Atmospheric CO2 now hitting 50% higher than pre-industrial levels

3: UN Environment Programme | UN Biodiversity Conference (COP 15)

4: The Guardian | The rise of vegan teenagers: ‘More people are into it because of Instagram’

5: ScienceDirect | Diversifying Food Systems in the Pursuit of Sustainable Food Production and Healthy Diets