Investing in Our Future

Why I believe that investing in sustainable companies is important and an overview of the exponential growth within ESG investing

Ever since my AP Environmental Science class in high school, I have had an interest in how humans interact and treat the Earth. My teacher was cutthroat and very pessimistic about his expectations for the future in regards to climate change, and it honestly worked well in getting the message across.

While this has been something that has been on my mind for the past few years, I haven’t had any realization of how I can involve this field in my professional career or life.

As I prepare to finish my college career and earn my Bachelor’s degree in Financial Management, I began to learn about the financing behind sustainability companies and startups. Looking through various venture and growth capital funds, I discovered the vast world of innovative startups and late stage companies that all have a goal of reducing our carbon footprint.

And I am not alone in finally deciding to become involved in this space…

Here is a look at various sustainability focused ETFs that saw record breaking amounts of inflows during the first quarter of 2021.

Image source: CNBC

There have been continuous record inflows into ESG funds, specifically the E of that acronym.

• Environmental - Climate change, resource management, pollution

• Social - Working conditions, health and safety, and impact in communities

• Governance - Executive compensation, lobbying efforts, and philanthropy

With about every single car manufacturer trying to outdo their competitor in emission reduction plans and EV fleet, the transition to green energy is finally happening at the necessary pace. As this begins to be normalized, people are going to begin to wonder how to get involved from an individual investors standpoint.

First, lets look at a couple of trends in the market.

State Street Global Advisors released a report in July of 2020, with a headline as follows:

“ESG tends to land in the spotlight during extreme events, such as the 2019 heat wave in Europe, wildfires in Australia and California — and now, the global pandemic” ¹

While this may ring true, there has been a rapid increase in ESG assets under management for the entire decade. So much so that ESG investing now accounts for 33% of the total $51.4 trillion assets under management of the U.S.²

Image Source: MarketWatch

There is obviously a spike in recent years, and there are many reasons for this, but my takeaways are the combination of the global pandemic as well as increased environmental awareness.

In fact, just a few weeks ago, Exxon Mobil shareholders outvoted management and appointed climate-minded board members.

Situations like this are beginning to happen daily, and people are starting to realize the change that needs to occur for humans to continue to live on Earth.

In addition to this, as the world population increases, it is reasonable to assume that along with increased carbon dioxide output, it will be harder to control the spread of infectious disease. Meaning mask mandates will likely return in the future.³

Thus, we are left with a massive world-wide market for carbon reduction, clean energy, and ethical companies. As I mentioned above, there is lots of inflows into this space, specifically within ETFs (which are my favorite way of investing due to their broad reach and low cost features).

While all of this is a tailwind for ESG investing, there are a couple other factors that will contribute to the growth of investor participation within the sector.

1. Investors will look to avoid ESG risk

2. Seek measurable impact (other than returns)

3. Seek better investment returns for their portfolio⁴

It is worth noting that none of these investment scenarios are mutually exclusive, meaning these can all contribute as a reason for someone to get involved.

Regardless of your views on climate change, there is no denying that money is trending towards environmental and climate solutions. This is also an incredibly young and innovative space, with ample room to grow.

My research on this is preliminary, and I will likely be following up with more extensive newsletters on specific sectors within ESG and what to look for. As always, do your own research, and understand what you are putting your money into before you invest.

Thanks for reading, I appreciate you!

Joey

Here are some ETFs to check out:

KRBN, CRBN, ICLN, ESGU, PBW, QCLN

1. https://www.ssga.com/library-content/pdfs/etf/spdr-esg-investing-tipping-point-to-turning-point.pdf

2. https://www.marketwatch.com/story/esg-investing-now-accounts-for-one-third-of-total-u-s-assets-under-management-11605626611

3. Or return now… The Delta variant of COVID-19 has already swept the U.K, and we might be up next: Forbes Delta Variant

4. https://awealthofcommonsense.com/2020/12/talk-your-book-esg-investing/