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Sustainable Investing Strategies by Popularity

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Sustainable Investing Strategies

Sustainable Investing Strategies

This infographic is available as a poster.

Sustainable Investing Strategies by Popularity

If you wanted to invest sustainably in the 1960s, your options were fairly limited. Sustainable investing strategies kicked off with socially responsible investing, where investors could exclude stocks or entire industries from their portfolio based on business activities. For example, if you didn’t agree with smoking you could exclude tobacco production companies.

Fast forward 60 years, and investors have many more approaches available to them. From exclusionary screening to ESG integration, which strategy is the most popular? This Markets in a Minute from New York Life Investments shows global assets under management for various sustainable investing strategies, to see which ones are used the most and the least globally.

The Types of Sustainable Investing Strategies

Before we dive into the numbers, it’s helpful to know the definitions of the various sustainable investing strategies. The Global Sustainable Investment Alliance, who put together this data, has classified sustainable investing into the seven core strategies below.

  • ESG integration: The explicit inclusion of environmental, social, and governance (ESG) factors into financial analysis
  • Negative/exclusionary screening: The exclusion of certain sectors, companies, or countries based on activities considered not investable
  • Corporate engagement & shareholder action: Influencing corporate behavior through actions such as shareholder proposals
  • Norms-based screening: Screening investments based on international norms, such as those issued by the UN
  • Sustainability-themed/thematic investing: Investing in themes specifically contributing to sustainable solutions, such as diversity
  • Positive screening/best-in-class: Investment in sectors, companies, or projects with positive ESG performance relative to industry peers
  • Impact/community investing: Investing to achieve positive ESG impacts, and/or investing in traditionally underserved communities

While these sustainable investing strategies differ in their approaches, they all require investors to consider ESG factors as they build and manage portfolios.

Sustainable Investing Strategies by Global AUM

Below, we show the global assets under management (AUM) of the sustainable investing strategies in 2020. It should be noted that these numbers include some double counting, as asset managers may apply more than one strategy to a given pool of assets.

StrategyGlobal Assets Under Management (2020)
ESG integration$25.2T
Negative/exclusionary screening$15.0T
Corporate engagement and shareholder action$10.5T
Norms-based screening$4.1T
Sustainability-themed investing$1.9T
Positive/best-in-class screening$1.4T
Impact/community investing$352B

In 2020, ESG integration overtook negative/exclusionary screening to become the most popular of all sustainable investing strategies. Its rise can likely be attributed to having access to more specific data, such as ESG ratings, that make an inclusive approach easier to implement. In addition, many investors are beginning to understand that considering ESG factors alongside financial analysis may help manage investment risks and increase return potential.

Coming in at third place, corporate engagement and shareholder action has over $10 trillion in assets worldwide. A separate report found that the number of ESG-related campaigns went up in 2021, and the success of investor activist campaigns increased slightly year over year. In fact, 25% of surveyed U.S. boards say they have already tied executive compensation to ESG metrics or are planning to do so.

Impact/community investing has the least AUM globally. It is most popular in the U.S., where 60% of the strategy’s total assets are held.

Growth Rate by Strategy

Of course, the above data reflects that some strategies–like exclusionary screening–have been around for longer periods of time. In contrast, the idea of impact investing was spurred in 2009 after the Global Impact Investing Network was launched.

Another way of gauging each strategy’s popularity would be to look at its recent growth. Here’s the compound annual growth rate of the sustainable investing strategies from 2016-2020.

Sustainable Investing Strategies

Sustainability-themed investing saw the highest growth. In 2020, it overtook positive/best-in-class screening to become the fifth most popular strategy. This growth mirrors the rise of thematic investing more broadly, as investors aim to capitalize on long-term structural shifts.

Norms-based screening was the only strategy to see negative growth, likely due to the way it is defined. Some standards falling under this strategy are now minimum and mandatory requirements by various national governments, especially in Europe where regulations have tightened. Because it is expected that these regulations are being followed, investors are least likely to say that norms-based screening is the strategy they use when they classify their sustainable investments.

Spoilt for Choice

Compared to the 1960s, today’s investors have many more sustainable investing strategies at their fingertips. However, with more options comes a new challenge: which strategies should investors consider?

The answer will depend on an investor’s objectives, but this data can give some insight on how other investors are approaching sustainable investing.

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Markets in a Minute

What Were the Top Performing Investment Themes of 2023?

In 2023, several investment themes outperformed the S&P 500 by a wide margin. Here are the top performers—from blockchain to AI.

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The Top Performing Investment Themes in 2023

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While the S&P 500 rebounded over 24% in 2023, many investment themes soared even higher.

In many ways, the year was defined by breakthrough announcements in AI and the resurgence of Bitcoin. At the same time, investors looked to nuclear energy ETFs thanks to nuclear’s growing role as a low carbon energy source and the war in Ukraine.

This graphic shows the best performing investment themes last year, based on data from Trackinsight.

Blockchain ETFs Lead the Pack

With 82% returns, blockchain ETFs outperformed all other themes in the U.S. due to the sharp rise in the bitcoin price over the year.

These ETFs hold mainly bitcoin mining firms, since ETFs investing directly in bitcoin were not yet approved by regulators in 2023. However, as of January 2024, U.S. regulators have approved 11 spot bitcoin ETFs for trading, which drew in $10 billion in assets in their first 20 days alone.

Below, we show the top performing themes across U.S. ETFs in 2023:

Theme2023 Performance
Blockchain82%
Next Generation Internet80%
Metaverse59%
FinTech54%
Nuclear Energy50%
Cloud Computing49%
AI/Big Data49%
Gig Economy48%
Digital Infrastructure & Connectivity43%

As we can see, next generation internet ETFs—which include companies focused on the internet of things and new payment methods—also boomed.

Meanwhile, nuclear energy ETFs had a banner year as uranium prices hit 15-year highs. Investor optimism for nuclear power is part of a wider trend of reactivating nuclear power plants globally in the push towards decarbonizing the energy supply. In fact, 63 new reactors across countries including Japan, Türkiye, and China are planned for construction amid higher global demand.

With 49% returns, AI and big data ETFs were another top performing investment theme. Driving these returns were companies like chipmaker Nvidia, whose share price jumped by 239% in 2023 thanks to its technology being fundamental to powering AI models.

Top Investment Themes, by Net Flows

Here are the the investment themes that saw the highest net flows over the year:

Theme2023 Net Flows
Robotics & Automation$1,303M
Nuclear Energy$997M
AI/Big Data$987M
Global Infrastructure$734M
Net Zero 2050$716M
Blockchain$357M
Cannabis & Psychedelics$270M
Emerging Markets Consumer Growth$203M

Overall, ETFs focused on robotics and automation saw the greatest net flows amid wider deployment of these technologies across factories, healthcare, and transportation actvities.

The success of AI large language models over the year is another key factor in powering robotics capabilities. For instance, Microsoft is planning to build a robot powered by ChatGPT that provides it with higher context awareness of certain tasks.

Like robotics and automation, AI and big data, along with blockchain ETFs attracted high inflows.

Interestingly, ETFs surrounding emerging markets consumer growth saw strong inflows thanks to an expanding middle class across countries like India and China spurring potential growth opportunities. In 2024, 113 million people are projected to join the global middle class, seen mainly across countries in Asia.

Will Current Trends Continue in 2024?

So far, many of these investment themes have continued to see positive momentum including blockchain and next generation internet ETFs.

In many cases, these investment themes cover broad, underlying trends that have the potential to reshape sectors and industries. Going further, select investment themes have often defined each decade thanks to factors like technological disruption, geopolitics, and the economic environment.

While several factors could impact their performance—such as a global downturn or a second wave of inflation—it remains to be seen if investor demand will carry through the year and beyond.

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Ranked: What People Value Most in a Financial Advisor

Positive reviews and recommendations are some of the least important factors—so what do people look for in a financial advisor?

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A bar chart of what people value in a financial advisor, showing that personalization is related to three of the top four answers.

Ranked: What People Value Most in a Financial Advisor

Are advisors putting their focus where it matters? You might think that positive reviews and recommendations would be a top consideration for people choosing a financial advisor. However, other qualities appear to be much more important.

This graphic uses data from Morningstar’s Voice of the Advisor report to outline what people value most in a financial advisor.

The Qualities Investors Value

Morningstar surveyed 400 people: 100 Caucasian women, 150 women of color, and 150 men of color. The values below show how often people chose an item as most or least important when working with an advisor.

QualityMost ImportantLeast Important
Expertise and knowledge in financial planning and investments60%11%
Personalized financial advice that meets my specific goals and needs54%16%
Ability to understand my risk tolerance and appropriately align my investments47%17%
Specialization in specific financial situations, such as retirement planning45%17%
Ability to communicate complex financial concepts in an understandable way42%22%
Transparent fee structure and pricing for my advisor’s services42%22%
Trust and rapport established during the initial meetings with my advisor36%24%
Ability to incorporate investment options that reflect my values22%41%
Positive online reviews or ratings about my advisor’s services22%46%
Recommendations from friends or family who had a positive experience with my advisor20%47%
Commitment to diversity and inclusion, making me feel comfortable and respected20%47%
Recommendations from other professionals, such as accountants or attorneys19%50%
Shares a similar background or cultural understanding10%68%

Participants were asked the following question: “On each screen, we will show you 3 items to think about when working with a financial advisor. Select which one is most important and which one is the least important of the items. You will see more than one screen and items may appear more than once.”

Enjoying this content? Dive into more insights in the Voice of the Advisor Report:

Report cover titled Four Opportunities to Elevate the Advisor-Client Relationship through Personalization with additional report pages shown. There is also a red button that says Click for exclusive insights.

Even among a survey pool that was mostly people of color, the majority of respondents didn’t think a commitment to diversity or a shared background were important.

Instead, three of the top four factors were related to personalization.

Personalization: A Key Quality in a Financial Advisor

People cared deeply about personalization regardless of gender and race. It was even more important to those with more than $250,000 in assets, suggesting that personalization may become more critical as a person’s portfolio value increases.

Even investors not currently working with an advisor and non-investors noted that personalization would be a top quality they would look for in a financial advisor.

Within personalization, people noted risk management was a very important element. Financial advisors can highlight their ability to tailor financial plans based on each person’s risk tolerance in order to attract clients.

Looking for tips on how to grow your advisory business? Get insights on what investors want, and how other advisors are evolving, in Morningstar’s Voice of the Advisor report.

Report cover titled Four Opportunities to Elevate the Advisor-Client Relationship through Personalization with additional report pages shown. There is also a yellow button that says get the free report now.

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