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Analysis: ESG investments expected to boom in 2021

By Paul Mackintosh   
January 20, 2021

One of the secondary but still significant headlines of the extraordinary last few days is the announcement that Joe Biden, who will officially become US President on January 20, will sign an executive order to rejoin the Paris climate agreement, just two months after outgoing President Donald Trump pulled out.

The actual process of rejoining the climate accord will take 30 days. This sets the stage for a year defined by environmental, social and governance investments.

One way or another, it was a movement already well in train. According to the Forum for Sustainable and Responsible Investment’s 2020 trends report, one-third of assets under management in the US, or US$17.1 billion, are now sustainably invested, representing a 42% growth rate since 2018.

Some analysts caution that much of the money in such assets is existing funds rebranding rather than capital flows, but the direction is clear – and welcome too if those funds are also modifying their strategies to incorporate sustainability considerations. Some headline figures around expectations for the Biden presidency predict a $30 trillion ESG sector boom by year-end in the US alone.

In December, BlackRock declared that ESG investment and climate change issues would be central to its strategy in 2021. “I believe we are on the edge of a fundamental reshaping of finance,” BlackRock Chairman and Chief Executive Officer Larry Fink wrote in a letter to CEOs.

Regulatory and other measures are also under way to support that reshaping. The European Union is putting forward a proposal for a separate pillar for non-financial reporting to cover sustainability criteria. The European Commission has asked the European Financial Reporting Advisory Group to plan to take on responsibility for creating non-financial reporting standards.

The Commission is concurrently reviewing the Non-financial Reporting Directive, which requires large companies operating within the EU to publicly disclose sustainability information. Its final proposal is expected to be rolled out by the end of March.

So the momentum, and the prospects of considerable gains, are already there. Pundits point to Tesla’s 684% stock price surge during 2020 as indicative of the kind of tailwinds that sustainability propositions can expect.

Just as well, and just in time, because here’s the real reason for this article. On January 13, a team of scientists published a paper in the Frontiers in Conservation Science journal, titled “Underestimating the Challenges of Avoiding a Ghastly Future”. Citing biodiversity loss, overpopulation, climate disruption, and “political impotence”, it warns of “a ghastly future of mass extinction, declining health, and climate-disruption upheavals (including looming massive migrations) and resource conflicts this century”. But it also says “there are many examples of successful interventions” and the situation can be remedied, though only with clear recognition of the actual risks.

Biden can’t issue the executive order soon enough.