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ESG Investing: The Top 5 Drivers, According to Investors

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ESG Investing

ESG Investing

This infographic is available as a poster.

ESG Investing: The Top Five Drivers

Today, environmental, social and governance (ESG) investing has never been more popular, surpassing record levels seen in 2020, according to Google Trends.

By 2025, ESG investing is projected to reach $53 trillion in assets globally—roughly equal to a third of all investment assets under management. It raises an important question: why are people choosing to use an ESG strategy?

To answer this question, the above Markets in a Minute chart from New York Life Investments looks at the top drivers behind ESG investing, based on a survey of 2,800 Chartered Financial Analyst (CFA) investment professionals.

What is ESG Investing?

ESG investing refers to assets that are selected according to their environmental, social, and governance factors.

These include everything from carbon intensity and gender representation, to executive pay. Often, these variables are analyzed through sources such as sustainability reports or government data, among others.

Broadly speaking, ESG investing strategies can fall into four main categories:

  • Values & Screening: Determines sectors, companies, and activities that are included or excluded from investment such as fossil fuels. This can also be based on investors’ values.
  • Integration: Identifies the risks and opportunities of ESG factors on companies. Typically more complex than screening approaches.
  • Thematic: Focuses on structural themes in ESG such as women’s leadership or smart cities.
  • Impact: Specific goals are designed to be met, such as companies that are working towards the UN Sustainable Development Goals.

Given its rapid rise, here are the most influential reasons why investors—retail and institutional alike—are paying attention to this trend.

The Top 5 Drivers of ESG Investing

Simply put, risk management and client demand were the most prominent factors behind ESG investing in 2020.

Driver of ESG Investing20172020
To help manage investment risks65%64%
Clients/investors demand it45%59%
It's our fiduciary duty36%43%
My firm derives reputational benefits32%41%
To improve financial returnsN/A*35%

Based on a March 2020 survey of 2,800 CFA institute members who were asked: ‘Why do you or your organization take ESG issues into consideration in your investment analysis/decision? (Select all that apply)
*No data available in 2017

Fiduciary duty ranked third highest, impacting the decisions of 43% of investment professionals.

Here, fiduciary duty is when an investment professional acts in the best interest of a client. From Brazil to the U.S., over 500 socially responsible regulations have been enforced globally, including corporate disclosures and pension fund regulations.

Additionally, improving financial returns was a primary reason for 35% of the respondents. In 2020, for example, 22 out of 23 ESG index funds outperformed their comparable non-ESG index.

ESG Investing: Age is Just a Number

Who is investing in ESG?

Across age groups, people were motivated by higher risk-adjusted returns and values to varying degrees. For instance, 42% of investors between 25-34 expected higher risk-adjusted returns from ESG compared to 16% of investors aged 55-64.

At the same time, 47% of investors across all age groups wanted to invest in ESG to express their personal values or focus on companies that were making a positive contribution to society and the climate.

Reason for Investing in ESG25-3435-4445-5455-6465+
To realize higher risk-adjusted returns42%39%18%16%14%
To express personal values or invest in companies with a positive societal/environmental impact44%41%54%50%50%
Both14%19%28%34%35%

Source: CFA (Apr, 2020)

Meanwhile, roughly a quarter of investors said that both higher risk-adjusted returns and sustainable impact underscore their interest in ESG.

Reason for Investing in ESGOverall
To realize higher risk-adjusted returns29%
To express personal values or invest in companies with a positive societal/environmental impact47%
Both24%

Source: CFA (Apr, 2020)

In 2020, 10% of retail investors invested in ESG. By comparison, interest in ESG is much higher. Almost 70% of individual investors expressed interest in these strategies.

Investment in ESGRetail InvestorsInstitutional Investors
Currently invest in ESG10%19%
Show interest in ESG69%76%

Source: CFA (Apr, 2020)

Perhaps one of the most interesting takeaways from this study, however, is the wide gap between interest and investment in ESG. One factor behind this gap could be due to the fact that just 41% of advisors have spoken to clients about ESG investing, research shows.

However, underlying perspectives on performance, demand, and personal preferences show that ESG may further cement its way into not only the investment dialogue, but investors’ portfolios.

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Markets in a Minute

Data Centers: Investing in the Infrastructure of the Future

Infrastructure refers to any asset that provides an essential service. In today’s interconnected world, data centers are exactly that.

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Data Centers

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Data Centers: Investing in the Infrastructure of the Future

Digital transformation is one of the world’s most prominent trends today.

For evidence, consider the growth in internet users worldwide. By 2023, 5.3 billion people (66% of population) will be using the internet, up from 3.9 billion (51% of population) in 2018.

This growth has resulted in an incredible amount of data being produced each day, whether its from streaming music on Spotify or buying goods on Amazon. But how is all this data being processed?

In this Markets in a Minute chart from New York Life Investments, we shed light on the importance of data centers, and why they should be considered as core infrastructure.

The Role of the Data Center

A data center is a facility that stores, processes, and disseminates data. There are thousands of them around the world, and collectively, they’re referred to as the “cloud”.

This puts data centers at the center of nearly everything we do online: e-commerce, communications, storage and back-up, and even online gaming. To gain a better sense of what this all looks like, the following table breaks down the storage capacity of the world’s data centers.

Segment2016 Storage Capacity (exabytes)2021 Storage Capacity (exabytes) 
Compute160470
Collaboration170400
Database & analytics150380
Enterprise resource planning180420
Video streaming50180
Social networking60160
Search engine30100
Other consumer apps70190
Total8702,300

Source: Statista (2021)

One exabyte is equal to one billion gigabytes, which means the world currently has 2.3 trillion gigabytes of total storage.

The largest segment is compute instances, which are cloud-based workstations used by data scientists. At the lower end of the scale are segments like video streaming (includes Netflix and Hulu) and social networking (think Facebook or LinkedIn).

Cloud Spending Reaches a Historic Milestone

For businesses that create and use data, moving to the cloud (as opposed to maintaining their own servers) has plenty of advantages like cost savings, flexibility, and security.

This is driving exponential growth in cloud infrastructure spending, which reached a record $130 billion in 2020. At the same time, spending on data center hardware decreased from $96 to $90 billion. These results are partly attributed to COVID-19, which forced many businesses to switch to a work-from-home operating model.

A survey conducted by 451 Research found that 40% of businesses had increased their usage of cloud services during the pandemic. In addition, 85% of those who were impacted indicated that the move would be a permanent one.

Data Centers are Infrastrcture

The scope of an infrastructure investor has historically been limited to companies in construction, energy, and transportation.

But what defines infrastructure?

It’s any physical system that is vital for an economy’s development and prosperity—and in a world where over 5 billion people are expected to be online by 2023, the data center is the perfect embodiment of that.

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Sustainable Investing Assets Worldwide (2018-2020)

From 2018-2020, global sustainable investing assets grew by 15% to reach $35.3 trillion. Here’s how they break down across five major markets.

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Sustainable Investing

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Sustainable Investing Assets Worldwide (2018-2020)

Sustainable investing is top-of-mind for many investors, but how fast is it actually growing?

Between 2018 and 2020, global sustainable investing assets grew 15% to reach $35.3 trillion. This works out to more than a third of total assets under management.

In this Markets in a Minute from New York Life Investments, we explore the value and growth of sustainable investing assets across five major markets.

What is Sustainable Investing?

Sustainable investing considers environmental, social, and governance (ESG) factors in portfolio selection and management. For the purposes of this data, it is a broad definition that includes seven main approaches:

  • ESG integration
  • Corporate engagement & shareholder action
  • Norms-based screening
  • Negative/exclusionary screening
  • Best-in-class/positive screening
  • Sustainability themed/thematic investing
  • Impact and community investing

In most regions, it is becoming increasingly common to combine several of the above strategies within the same product.

Sustainable Investing Assets by Region

Sustainable investment data comes from five major markets: the U.S., Europe, Japan, Canada, and Australasia. Currencies have been converted to U.S. dollars at the prevailing exchange rate at the day of reporting. We’ve based growth rates on U.S. dollar values.

Here is the value of sustainable investing assets in U.S dollars, sorted by asset amounts in 2020.

Region20182020Growth Rate
United States$12.0T$17.1T42%
Europe$14.1T$12.0T-15%
Japan$2.2T$2.9T32%
Canada$1.7T$2.4T43%
Australasia$734B$906B23%

All 2020 assets are reported as of December 31, 2019 except for Japan which reports as of March 31, 2020. Australasia is Australia and New Zealand. In 2020, Europe includes: Austria, Belgium, Bulgaria, Denmark, France, Germany, Greece, Italy, Spain, Netherlands, Poland, Portugal, Slovenia, Sweden, the UK, Norway, Switzerland, and Liechtenstein.

The U.S. makes up almost half of global sustainable investment assets, and saw the second highest growth rate. One strong theme in the country is racial justice investing. Over 120 investors and organizations signed a call to action for the investment community to dismantle systemic racism and promote racial equity and justice. They plan to achieve this through various actions, such as hiring people of color and financing Black entrepreneurs.

Europe makes up over a third of all sustainable investing assets. The region has seen important regulatory developments, such as:

  • Institutional investors, asset managers, and advisors must report on how they integrate sustainability risks and adverse impacts at the entity level
  • Advisors are required to ask about their clients’ ESG preferences and advise appropriate products

While Europe saw a decline in growth from 2018-2020, this is because the region has changed how they define sustainable investing. Tighter legislation means that some products that previously qualified as sustainable may not meet the new requirements. The goal of the legislation is to create clear standards for sustainable products, promoting trust and easier access for investors.

The Mounting Pressure

Globally, the proportion of sustainable investing assets is growing. In fact, sustainable investments make up 36% of global assets under management, up from 28% in 2016.

Investment professionals say the top drivers of sustainable investing are to help manage investment risks, and because clients demand it. Not only that, the recent Intergovernmental Panel on Climate Change (IPCC) report has reinforced the importance of sustainable investments.

“The climate crisis poses enormous financial risk to investment managers, asset owners and businesses….. The public and private sector must work together to ensure a just and rapid transformation to a net-zero global economy.”
António Guterres, UN Secretary-General

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