PART 1: WHAT DROVE THE RISE OF ESG INVESTING?
Environmental, Social, and Governance (ESG) investing aligns profit with purpose 🪴💰
Between 2017 and 2021, ESG became the hottest trend in finance. But whether this reflects financial fundamentals or speculative demand is critical. Was the rise of ESG built on solid financials – or is it the next financial bubble?
Below are some key drivers of ESG’s growth 📈:
- Large asset managers like BlackRock funnelled trillions into ESG, and so it became the norm. Pension funds followed suit for risk management. ESG AUM reached $60 trillion, 50% of total institutional assets.
- The EU
Green Deal and the SEC’s
proposed climate disclosure polices forced companies to integrate ESG
into reporting. The EU
SFDR classified funds, driving record inflows.
- ESG
firms prove less volatile in downturns. 90% of
studies found a non-negative CFP link, and average correlation of 0.15.
- Lower
fees for ESG funds (~0.34%) are more attractive than conventional
funds (~0.36%).
- Millennials and Gen Z shifted demand towards sustainable finance. They care for the future of our planet.
But all that glitters is not gold ✨🥲 Here are some critical points to consider :
- Weak standards and divergent ratings obscure transparency. Commonly known as “greenwashing”.
- EU Green Deal & SEC mandates may have inflated demand and misallocated capital.
- Some compare ESG’s momentum to past speculative trends - whether it’s a boom or a shift remains debated.
On the plus side 🌞:
ESG fund inflows peaked in 2020-2021. They have since
stabilised. The dip in 2023 may signal market correction as ESG matures rather
than a bubble burst (Morningstar,
2023).
Policy and institutional backing fuelled ESG’s rise. But are
valuations sustainable? 🤔
Next, we uncover whether ESG is overvalued and if greenwashing has distorted market confidence. Stay with me🤝
Comments
Post a Comment