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Misconceptions of ESG Investing

A common misconception with ESG investing is the belief that investors may have to sacrifice potential investment returns or that the scope of investment is narrowed. However, there is increasing evidence that this is not the case. One such example, a Harvard University study conducted in 2015 by Khan, Serafeim, & Yoon[1], found that companies with a good rating on sustainability, respective to their industries, significantly outperformed competitors with poorer sustainability ratings.

There is an outlook on ESG investing regarding the ‘restriction’ on an ESG investors options, with the consensus being that there are a very limited number of sustainable investments out there. Even though the ESG concept is fairly new, the constantly growing momentum is creating new sustainable investments to be brought to fruition as well as current companies changing their business dynamics in order to attract retail, professional and institutional investors.

There is no doubt that the world is moving towards seeking a more sustainable way of life. Most Governments around the world are increasingly conscious of this, and many are now investing huge capital sums into renewable energy and de-carbonisation projects.

Recently elected American President, Joe Biden, stood on an election manifesto that marked a complete reversal on environmental issues from policies of former President Trump. Since Biden’s election he has announced a $2 Trillion, four-year Climate Plan that invests in clean energy across the US transportation, electricity and building sectors.[2]

ESG based capital investment approaches appear to serve to accelerate business change. In addition, the increasing demand from capital markets for ESG criteria to be met by companies seeking investment may will set in motion a continuous positive feedback loop of further innovation, investment and positive societal outcomes.

 

Josh Grice 2021

[1]https://www.sustainablefinance.ch/upload/cms/user/CorporateSustainability_Firstevidenceonmateriality_Khan_Serafeim_Yoon_February2015.pdf

[2] https://www.nytimes.com/2020/07/14/us/politics/biden-climate-plan.html