Why Socially Responsible Investing Is Only Getting Started

By: Jake Willms, Quantitative Analyst

I’ve covered “socially responsible” investing, better known by the acronym “ESG”, in a previous post last year where I discuss the fundamentals and introduce the topic. ESG stands for Environmental, Social and Corporate Governance, which are the three core factors to sustainability investing. With the start of the new year, ESG wastes no time to make headlines as investors anticipate further growth in 2021.

Make no mistake, ESG has done well in the last few years, so expecting growth isn’t exactly a radical opinion. For instance, assets devoted to sustainable investing has grown dramatically since 2014; invested assets nearly tripled during that 6-year span.

Still, the confidence surrounding ESG has more depth to it than simply following the momentum it carried from last year. The biggest change for ESG investing has to do with politics. The Trump presidency will come to an end on January 20th, and with that comes the beginning of the Biden presidency, which is believed to be an environmentally-focused administration. Biden himself has said that he considers climate change to be the “number one issue facing humanity”. Investors have previously focused mainly on the “governance” component, but that opinion has started to shift towards a more balanced view.

It’s only natural to wonder what kind of growth ESG has in store under the Biden Administration. Despite mine and others optimism, growth and above-average returns are far from guaranteed, so its best to speak with a financial professional about exploring ESG investing for yourself. Regardless, its something to keep a close eye on as we move forward into the new year.

This chart was first seen on Forbes.com

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