There is no doubt that there has been a growing interest by investors to make more intentional decisions about which companies to invest in. With everything that is happening globally, taking an active role on key issues such as climate change and social justice means putting your money where your heart is.
In recent years, ESG (Environmental, Social and Governance) funds have gained significant popularity among investors. Globally, the funds were on track to pass $40.9 trillion by the end of 2022(the current numbers are yet to be released), nearly double the 2016 number of $21.6 trillion. If taking part in this new wave of sustainable investing interests you, here are a few points to consider about this ever-shifting investment landscape.
From a growth standpoint, companies with high ESG values have shown consistent resilience and growth for more than 20 years. Even though the COVID-19 pandemic, ESG stocks had above-market returns. This, coupled with the growth in ESG Funds, is strong evidence that investors can leverage their investments to change business priorities and increase sustainability awareness.
From a valuation standpoint, the relative performance of sustainable and traditional U.S. equity funds showed no financial trade-off in performance from 2004 to 2020. Along the same lines, in 2021, Morningstar’s broad 373-stock U.S. Sustainability Index had returns that were 3% better than the overall stock market, with a 29.1% return. Apart from that, the 50 U.S. companies with the best ESG scores, as rated by Sustainalytics, beat the broader U.S. market by more than 8%, with a return of 33.3% for the year.
To build a buffer against market downturns and possible recessions, more and more investors are looking for investments with colossal upside potential while insulating from ESG-related risks. This means preliminary research on a company’s governance, supply chain and environmental impact before investing.
In 2021, Morgan Stanley published a report stating that 99% of Millennials were interested in ESG investing. What’s promising for the ESG sector is that Millennials are set to inherit an estimated $27.4 trillion, mostly from baby boomers. With the generational wealth transfer in full effect, you can expect more funds to be directed toward ESG stocks. What this means is we can expect to see more companies prioritizing ESG and more rigorous and reliable sustainability metrics.
Much evidence points to the fact that ESG investing is at the tipping point of its evolution. There has been a massive influx of individual savers and large institutions directing a proportion of their portfolios towards sustainable strategies as they look to use their capital to help create a more sustainable world.
In closing, ESG Investing is quickly becoming a lucrative space for investors passionate about exchanging dollars for a difference. If living in a greener future is a priority of yours, getting sound advice from an advisor can help you make the most significant impact with your dollars while earning a generous return on your investment.
- Kondwelani Kalinda, Licensed Assistant
Kondwelani Kalinda is a Licensed Assistant at Endeavour Wealth Management with iA Private Wealth, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Kondwelani Kalinda who is a Licensed Assistant for iA Private Wealth and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
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