Investors today are increasingly focusing on more than just a company’s financial records. ESG investing, which evaluates businesses based on environmental, social and governance factors, provides deeper insights into an organization’s impact on stakeholders and the planet. As the importance of green investing grows, so does its popularity.
Bloomberg Intelligence projects ESG assets will reach $53 trillion by 2025, making up one-third of total assets under management (AUM). Here are five key trends driving the rise of ESG investing:
1. millennials and ESG investing
The involvement of younger people in sustainable investment is one trend that may last for generations. Millennials, who tend to prioritize environmental and social issues, are looking for investments that reflect their values. They often seek companies with strong commitments to reducing carbon footprints, promoting safety, fair labor practices and community development, among other more socially minded issues.
This demand is prompting financial institutions to offer more sustainable options. Additionally, government and other incentives are available to support investments in renewable energy, clean technology and social impact projects. For example, the U.S. Inflation Reduction Act (IRA) provides tax incentives for investing in renewable energy assets like solar power, wind power and fuel cells, and for emerging technologies.
Trend score: 10/10
Millennials investing in companies that do good things, combined with financial incentives and government regulations, is likely a long-term upward trend.
2. AI in ESG investing
Artificial intelligence (AI) is everywhere right now, including ESG investing — and for good reason. It’s remarkable! Here are a few ways AI helps green investing:
- Predicting trends: By analyzing historical data and current trends, AI can forecast future patterns.
- Understanding data: AI helps investors sift through vast amounts of information on a company’s ESG practices, quickly identifying critical insights.
- Improving accuracy: AI can ensure the reliability and precision of ESG data used by investors, giving them more confidence in their decision-making.
- Finding opportunities: AI detects patterns and trends that may be difficult for people to discern on their own. This means investors can find promising opportunities for ESG investments quickly and easily.
Trend score: 11/10
The continuous evolution of AI is making it a lifetime tool for investors in ESG. As AI becomes more advanced, it will solidify its role as an essential component of sustainable investing.
3. hyperlocal ESG investing
The trend of buying local extends to investing as well. Hyperlocal ESG initiatives focus on making a positive impact right where you live. This appeals to investors because they can clearly see how their funds directly benefit the community.
This kind of investing can have a significant impact by supporting sustainable agriculture, real estate like affordable housing, green infrastructure bonds, microfinance initiatives, waste reduction and sustainable water management. The financial rewards, coupled with a sense of pride in contributing to the local community, make hyperlocal investing increasingly popular.
Trend score: 8/10
The trend of hyperlocal investing is likely to continue due to its tangible benefits and the direct impact it has on communities. However, as new trends and technologies emerge, broader or more innovative approaches to sustainable investment could replace local investing.
4. net-zero goals
The term net-zero refers to balancing greenhouse gas emissions with an equal amount of removal, resulting in a neutral impact on the climate. With many governments setting strict net-zero goals, the race for compliance is on. In the U.S., the federal government is targeting a 65 percent emission reduction by 2030, with the remaining 35 percent by 2050. Canada has also set a net-zero goal for 2050.
In this trend, investors are increasingly drawn to companies prioritizing net-zero emissions because compliance deadlines are rapidly approaching. They expect businesses to actively reduce their carbon footprint through significant energy efficiency upgrades and set clear plans for transitioning to renewable energy. By adopting net-zero strategies, companies can attract investors and consumers who value environmental responsibility and remain well-positioned for growth.
Trend score: 7/10
The trend of prioritizing net-zero emissions is likely to continue as strict regulations compel companies to comply with approaching deadlines. However, if regulatory pressures ease or if alternative sustainability strategies gain prominence, the focus on net-zero emissions in green investing might diminish.
5. investing in SDGs
The UN Sustainable Development Goals (SDGs) are a set of 17 global goals designed to address major sustainability challenges. They include improving access to education and healthcare, eliminating poverty and hunger, promoting gender equality, supporting climate mitigation and preserving biodiversity.
When it comes to trends, funds that align with the SDGs are in high demand among investors, policymakers and socially conscious consumers because they tackle specific issues that can have a major impact on business, humanity and the environment.
In June 2024, global bank JPMorgan made it clear companies seeking funds must demonstrate their dedication to the UN’s SDGs and ESG in general. This is a sign of a broader shift in the financial world as it shows banks and investors want to put their money where it can benefit them and society as a whole.
Trend score: 8/10
Investing in UN SDGs is likely to continue because of increasing societal and regulatory pressure to address serious global issues. However, this trend may face challenges if economic priorities shift away from long-term sustainability goals or if regulatory support lessens. Learn more about Randstad’s strategy regarding SDGs.
bring ESG expertise to your company
Within a company, roles such as the Chief Sustainability Officer, Director of Corporate Responsibility and Head of Governance and Compliance can be responsible for overseeing ESG initiatives, integrating sustainability into business practices and ensuring regulatory compliance.
These team members play crucial roles in developing authentic ESG policies, avoiding greenwashing (pretending a company is more sustainable than it is) and making sure your company meets future ESG demands effectively.
Reach out to Randstad today and find the right professionals to get you there.