What’s Happening Around ESG Investing? The Latest Trends of 2023
ClimateAngels | Aug 24, 2023
Are you ready to unlock the secrets of green investing in 2023’s remaining days? It might be the best of your decisions to date.
Let’s delve into the enthralling world of ESG Investing and Climate Change Investing.
While interconnected, both ESG Investing and Climate Change Investing harbor distinctive approaches and objectives, reshaping the landscape of responsible investing. These two areas of investing are rebuilding sustainability.
Keep on exploring this article. Unveil the driving forces behind the ESG’s prevailing investing trends and learn the seven investment strategies designed to help you navigate this dynamic terrain.
What is ESG Investing and how is it different from Climate Change Investing?
ESG Investing and Climate Change Investing are related concepts in the world of investments, but they differ in the realm of sustainable investing or green investing.
While both ESG Investing and Climate Change Investing share the goal of promoting sustainability, ESG Investing encompasses a broader range of environmental, social, and governance considerations.
However, Climate Change Investing is more about the specific challenge of climate change and its impact on the environment and the biodiversity of the planet Earth.
Climate Change Investing focuses on companies contributing to the fight against climate change through their environmental efforts and innovative technologies.
In short, Climate Change Investing is a subset of ESG Investing, as environmental factors are a critical component of the broader ESG framework.
ESG investors aim to support companies that demonstrate impressive performance in these three areas, aligning their investments with their values.
What are the 7 strategies of ESG Investing?
Here are the 7 ESG Investment Strategies you should explore and use to make the most out of your potential investments to companies in ESG segment. You can also use them while investing in climate change actions:
1. Negative Screening
Exclude specific companies or sectors based on predefined criteria. For instance, omit fossil fuel firms to mitigate climate impact.
For example; Let’s assume the criteria of “Exclusion of Fossil Fuel Companies”. So, the rationale would be – “The investor is concerned about the environmental impact of fossil fuel extraction and combustion, including the contribution to greenhouse gas (GHG) emissions and climate change.”
Now,
Implementation: The investor decides to exclude companies directly engaged in the exploration, production, or distribution of fossil fuels, such as coal, oil, and natural gas, from their investment portfolio.
Then,
Result: The investor’s portfolio would not include stocks or bonds of companies involved in fossil fuel industries. Instead, they may opt for investments in renewable energy companies, energy-efficient technologies, or other sectors aligned with their ESG values.
So, negative screening in this example helps the investor demonstrate a commitment to reducing the carbon footprint of their portfolio and supporting cleaner, more sustainable energy alternatives. This approach allows investors to align their investments with their values and contribute to positive environmental outcomes.
2. Positive Screening
Select top-performing companies using predefined performance measures. Invest in firms with low carbon footprint or diverse boards.
For instance; In positive screening, an investor might actively seek out renewable energy companies or businesses with exceptional gender diversity and inclusion policies to align their portfolio with their ESG values and financial goals.
3. Portfolio Tilt
Prioritize ESG investments over non-ESG while maintaining sector weights aligned with a target index. Balances risk and ESG focus.
4. ESG Integration
Embed ESG into the investment process, leveraging firms with high material ESG ratings to enhance returns.
5. Shareholder Action
Advocate for ESG initiatives in invested companies to drive positive change and potentially boost returns.
6. Activist Investing
Purchase equity to influence company ESG strategies. Shape company direction and reap rewards as new strategies succeed.
7. Sustainability-Themed Investing
Invest in indexes of companies addressing specific sustainability issues, like waste management.
Remember: There’s nothing great/wrong/good/bad about investing and risk tolerance. Everyone has their own capabilities. Risk tolerance depends on a range of factors such as your financial goals, your comfort with market fluctuations, the knowledge and experience you have, your emotional response when you win or lose, and your age to recover from losses. So, it is recommended to be careful, do your homework well, play safe, and keep investing.
Climate Change/ESG Investing Trends In 2023
As we step into the remaining half of 2023, the world is marked by a major European conflict, energy market upheavals, inflation, rising interest rates, and a series of climate-driven disasters (mainly the extreme weathers, wild fires, and other events).
The psychology of species is in chaos (which everyone is experiencing for the first time in history) at the moment. These global challenges inevitably raise questions about the impact on ESG and sustainability trends in the APAC markets this year.
The prevailing trends in ESG influencing climate investing in the APAC region have gained recognition:
Source: MSCI ESG Research Report – 2023
The pressing issues of climate change risk and the journey to achieve net zero emissions, the interconnected threat of biodiversity loss, social inequalities, and the ongoing debate surrounding greenwashing and the true essence of ESG are the main focus.
Stats for India’s Air Pollution Exposure:
Source: MSCI ESG Research
For deeper insights into the key and emerging trends that could shape the financial industry and the ESG and climate investing landscape, we invite you to watch this informative video from the CFA Institute. It offers valuable perspectives on the path ahead.
Watch this 1:06 minutes of video for clear understanding of ESG and Climate trends:
Video Source: CFA Institute
Highlights of Climate Change Investing Trends – 2023
Amidst a rapidly evolving global scene, where investments are being redefined and companies face new challenges and opportunities, we delve into knowing the financial face-up to climate risks in various streams.
Intersecting Climate Trends Across Multiple Sectors:
1. Governance + Workforce
– As Asian Companies Embrace Female Directors, Human Capital Grows Stronger.
Source: MSCI ESG Research
2. Regulation + Investment ($)
– Regulators are increasingly focusing on ESG funds, with several jurisdictions implementing or considering regulations and guidelines for such investments.
Source: MSCI ESG Research
3. Climate + Regulation
– Assessing Banks‘ Preparedness for Climate Stress Test Regulations and Their Performance in Disclosed Climate Risk Analysis Indicators.
Source: MSCI ESG Research
– Exploring the Resurgence of Nuclear Energy and the Variances in Fleet Capacity Among Leading Players.
Source: MSCI ESG Research
4. Climate
– Striving for Net Zero: Are Companies’ High Ambitions Supported by Practical Strategies? Evaluating Credibility Among MSCI ACWI IMI Constituents with Climate Targets.
Source: MSCI ESG Research
– Greening Steel Production through Enhanced Blast Furnace Upgrades: Examining the Steel Industry’s Growing Carbon-Reduction Commitments.
Source: MSCI ESG Research
– Data reveals the prevalence of green-certified buildings like LEED and BREEAM within the portfolios of industrial REIT companies, with the majority of APAC markets, including Japan, Australia, New Zealand, and Singapore, leading in green certifications.
Note: As of October 18, 2022, MSCI’s ESG Ratings coverage offers insights into the proportion of green-certified buildings within these portfolios, reflecting a global shift towards environmental consciousness in the industrial real estate sector.
Source: MSCI ESG Research
– Energy Crisis and Ukraine Conflict Influence Fossil Fuel Focus, Yet Renewables Remain Prominent: Major Utilities in APAC Prioritize Networks and Renewable Investments in Capital Expenditure Plans.
Source: MSCI ESG Research
– Initiating an Actuarial Revolution in Insurance: Quantifying Emissions Associated with the Industry as a Catalyst for Further Sustainability Initiatives.
Source: MSCI ESG Research
5. Climate + Investment ($)
– Utilizing Emissions Attribution for Net-Zero Portfolio Alignment: Illustrating the Impact of Attribution Analysis on Portfolio Emissions Intensity Changes.
Source: MSCI ESG Research
6. Climate + Biodiversity + Regulation
– Tackling Deforestation: Market Restrictions Gain Traction, With Paper and Forest-Products Companies Taking the Lead Despite Limited Deforestation Policies.
Source: MSCI ESG Research
7. Climate + Supply Chain
– Repurposing Old Electronics for New Energy Technologies: Progressing Towards a Circular Economy for Metals.
Source: MSCI ESG Research
– Exploring the Crossroads of Cotton Sustainability and the Path Forward for Fiber Innovation: An Expanding Trend Among Apparel Retailers Embracing Third-Party Certifications for Ethical Cotton Sourcing.
Source: MSCI ESG Research
The Path Forward
In the journey of ESG trends, we are set to witness a shift towards “climate positivity” as the next major focus, surpassing the importance of achieving net-zero emissions. Companies will increasingly strive to ensure that their operations genuinely lead to a reduction in carbon dioxide in Earth’s atmosphere.
Sustainable Investing/Green Investing – As we move into another half of 2023, the momentum behind sustainable investing is expected to persist. Businesses are poised to concentrate on addressing the external impacts of their operations, such as those related to climate change, while expanding the horizons of ESG considerations. If you are looking to anticipate a deeper integration of ESG factors into investment decision-making processes, contact us. Our experts will help you become smart at ESG and climate change investing.
Want to explore more insights into climate investing?
Here is the list of well-researched and thoughtful articles for you to learn about climate change investing and ESG investing:
1. What Is Climate Investing?
2. What Is ESG Investing and Why Is It Important To Consider?
3. What Are The Themes Of Climate Investment? Unlocking Investing Opportunities In India
4. Insights From McKinsey’s Climate Investment Analysis
5. India’s Investment Against Climate Change
References:
1. https://www.msci.com/our-solutions/indexes/climate-action-indexes?creative=628277388697&keyword=msci%20esg%20scores&matchtype=b&network=g&device=c&gclid=Cj0KCQjw_5unBhCMARIsACZyzS0HS_ph1cI63868yq1C6wHXmMmhlhnii55qovrgfJbUELS2o7rSjaIaAtDPEALw_wcB&gclsrc=aw.ds
2. https://www.arx.cfa/en/research/2023/03/soc130323-webinar-2023-esg-and-climate-trends-to-watch-the-apac-view
3. https://www.cfainstitute.org/
5. https://www.epa.gov/water-research/net-zero