According to estimates by OnePlanetCapital, an investment banking firm based in London, more investors are showing interest in putting their money where their personal philosophies lead them.
Companies and market leaders are waking up to this realization, and they are looking for ways to attract these thoughtful investors. When you hear about automakers such as Volkswagen making commitments to increase their electric car production, you know that socially conscious investing is making a difference.
Socially conscious investing, the practice of generating profits by supporting financial operations that truly care about the world we live in, has been around for a while; however, certain events that unfolded over the last few years have made this style of investing more prominent. Gender lens investing that seeks to empower the lives of women, for example, is being increasingly taken into consideration by fund managers in charge of university endowments; this is clearly a reflection of the #MeToo movement, which has shone a light on gender inequality. It would not be responsible for an American college to invest endowment funds into an advertising agency known to routinely objectify women.
The flow of money from traditional assets such as crude oil is going in the direction of new assets such as solar energy generation, and this has a lot to do with the global response to climate change. Investing in hydrocarbons at this time does not represent a socially responsible attitude, and this has been reflected on crude oil prices thus far in the 21st century.
Climate change is a major driver of socially conscious investment; in fact, OnePlanetCapital estimates that 85% of its investors are motivated to allocate their money towards companies that are making clear efforts towards reducing carbon emissions.
Looking back to the year 2020, we can see that there were various factors that influenced the current trend of socially conscious investing. Some of these factors were decidedly political; for example, the consumer boycott of Goya Foods had more to do with the company’s support of former United States President Donald Trump than with its track record of social responsibility. The #BlackLivesMatter movement against racial injustice and police brutality made it clear to business executives that their companies should be on the side of those who support social justice. The coronavirus pandemic prompted investors to point their money towards companies helping their communities during this very difficult period.
In essence, when investors see organizations that are not aligned with their interests, they are now more likely to actively say: There are better investment opportunities for me to explore. To this effect, we have a new breed of investment banking firms that focus on environmental, social responsibility, and corporate governance causes.
These ESG funds are managed by just 10% of investment banking firms, but market analysts believe that they could make up 30% of all funds in the next few years. It will not be surprising to learn about ESG exchange-traded funds being approved by the Securities and Exchange Commission this decade. All in all, we hope that socially conscious investing can grow out of being just a trend to becoming a new standard on Wall Street.