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Four Types of ESG Strategies for Investors

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ESG Strategies

ESG Strategies

This infographic is available as a poster.

Four Types of ESG Strategies for Investors

In recent years, sustainable investment strategies have shown a number of benefits for investors, from resilience in market downturns to share outperformance in the long-term.

Meanwhile, investor interest has skyrocketed—with environmental, social, and governance (ESG) indexes advancing 40% between 2019 and 2020 alone. Given the increased demand for green investments, investors have an ever-expanding list of options to choose from. But what ESG approach is the right fit for you?

To answer this question, this Markets in a Minute chart from New York Life Investments looks at the primary strategies used in ESG investing to help investors choose the approach that works best for their portfolio.

What Kind of Investor are You?

Broadly speaking, there are four main approaches to ESG investing: ESG integration, exclusionary investing, inclusionary investing, and impact investing.

1. ESG Integration

“I want to integrate ESG factors and traditional factors to assess the risk/reward profile of my investment.”

For example, using an ESG integration approach, a company’s water usage and toxic emissions would be assessed against financial factors to analyze any future risks or investment opportunities.

2. Exclusionary Investing

“I want to screen out controversial companies or sectors that do not meet my sustainability criteria.”

Using an exclusionary investing approach, an investor may screen out companies whose revenues are from tobacco, gambling, or fossil fuels.

Related ESG Terms:

  • Negative Screening
  • Negative Selection
  • Socially Responsible Investing (SRI)

3. Inclusionary Investing

“I want to seek out companies that are ranked highly in their sector based on sustainability criteria.”

With an inclusionary approach, a fund may include the leading companies in a sector, relative to their peers, such as the top performing tech companies in ESG.

Related ESG Terms:

  • Positive Screening
  • Positive Selection
  • Best-In-Class
  • Positive Tilt
  • Thematic Investing

4. Impact Investing

“I want to invest in companies that attempt to deliver a measurable social and/or environmental impact alongside financial returns.”

Lastly, impact investing approaches may focus specifically on renewable energy companies that have the intent to make a positive environmental impact.

Related ESG Terms:

  • Goal-Based Investing
  • Thematic Investing

ESG Investing Strategies, By Market

How does interest in ESG strategies vary according to geographical region? Overall, interest has increased across all regions globally (where data was available).

Interest in ESG By Market*20182020
India98%100%
Mainland China95%98%
UAE90%94%
MexicoN/A92%
France79%91%
Brazil82%90%
JapanN/A88%
Hong Kong, SAR China71%86%
South AfricaN/A83%
Germany64%81%
Singapore77%78%
United Kingdom51%77%
Canada49%68%
Australia49%65%
U.S.49%57%

*With interest in these strategies and already employing them
Source: CFA Institute (Dec, 2020)

At the top was India, where 100% of respondents expressed interest or were already using ESG strategies—up from 96% in 2018.

In fact, India developed National Voluntary Guidelines on Social, Environmental, and Economic Responsibilities of Business as far back as 2011. This was designed as a guideline for responsible business conduct, which later aligned to the UN Sustainable Development Goals in 2016.

Following closely behind were investors in China (98%) and UAE (94%).

By contrast, 57% of investors in the U.S. employed ESG strategies—the lowest among geographic regions. Despite this, in the last two years, this figure jumped 8%, and it may rise higher yet given U.S. president Joe Biden’s new climate priorities. Electric grid and clean energy, decarbonization, and electric vehicle incentives all fall under a massive $2 trillion infrastructure plan, which will likely have a significant impact on the dialogue surrounding ESG.

Going Green

As the global drive for ESG investment continues to rise, investors can harness a greater understanding of different ESG strategies to meet their personal objectives—whether it is risk/reward analysis, seeking out ESG top performers, or a measurable environmental impact.

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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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