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ESG (Environmental, Social, and Governance) investing has attracted a lot of attention in recent years. More than ever, investors want to know how the companies they’re investing in are making a positive impact on the world.
The push towards ESG investing has led to hundreds of new funds and a reshuffling of investment capital around the world. In this article, we’ll take a look at ESG investing statistics that highlight the significant impact ESG investing has had and where it could be headed next.
About ESG Investing
ESG stands for Environment, Social, and Governance. ESG investing is a modern shorthand for impact investing, a style of investing in which investors seek to put their money in companies and assets that are good for the world.
There are many different types of ESG investments. Some are focused on companies that prioritize reducing carbon emissions while others are focused on companies that promote diversity within their workforce. Others simply exclude companies that are related to fossil fuel production from otherwise traditional funds.
Notably, there are few clear rules in the US about what a company must do to be included in an ESG fund. The decision about what constitutes an ESG investment is up to fund managers and individual investors.
ESG Investing Statistics Highlights
- ESG investments are growing around the globe – ESG investments have nearly doubled since 2016 and are expected to surpass $50 trillion by 2025.
- ESG investments perform well – More than half of ESG equity funds beat their category index over the past 5 years. In addition, 63% of ESG initiatives generated positive equity returns for individual companies.
- Europe leads the world in ESG investing – Europe accounts for more than 80% of ESG investment and has far more requirements around ESG reporting than the US.
- ESG investing still has a long way to go – Only 3% of 401(k) plans offer an ESG investing option and only 34% of financial advisors recommend ESG investments.
1. ESG investments will be Worth $41 Trillion by the End of 2022
(Source: Bloomberg)
According to Bloomberg Intelligence, the global total of assets under management in ESG-related funds will grow to $41 trillion. That’s up from $22.8 trillion in 2016. Bloomberg Intelligence also estimates that ESG-related investment will surpass $50 trillion by 2025.
2. There are 534 ESG Funds in the US Alone
(Source: Morningstar)
As of 2021, there were 534 registered ESG mutual funds and ETFs in the US alone. The number of ESG funds has nearly doubled since 2018. 70% of ESG funds in the US are actively managed funds.
3. 34% of Financial Advisors Recommend ESG Investments
(Source: Financial Planning Association)
According to a survey conducted by the Financial Planning Association, 34% of financial advisors recommend ESG investments to their clients. That’s a slight drop from 2020, when 38% of financial advisors reported recommending ESG investments.
In addition, 31% of advisors say they’ve received questions from clients about ESG investments in 2022 compared to 39% in 2020.
4. ESG Initiatives Produce Positive Returns
(Source: McKinsey)
In a survey of 2,000 companies, McKinsey found that ESG propositions resulted in positive impacts on equity returns 63% of the time. The survey found that the positive effects are due to ESG investments facilitating top-line growth, reducing costs (including regulatory and legal costs), increasing employee productivity, and streamlining capital expenditures.
5. ESG Funds Have Outperformed Over the Past 5 Years
(Source: Morningstar)
ESG investments have outperformed relative to non-ESG funds over the past 5 years. According to Morningstar, 57% of ESG equity funds beat their category index. Over a 3-year timeframe, 63% of ESG equity funds outperformed their category index.
6. 20 New Climate-focused Funds Launched in 2021
(Source: Morningstar)
20 new climate-focused funds launched in the US last year. 8 of these funds are focused on climate solutions, 5 on clean energy technology, 4 on climate-conscious companies, and 3 on low-carbon companies. There are now 65 climate-focused funds in the US in total.
7. There is Over $4 Trillion in “Sustainable Debt”
(Source: Bloomberg)
ESG funds aren’t limited to equity investing. There is a growing number of fixed-income investing funds that focus on so-called “sustainable debt.” These funds invest in sustainability-linked corporate bonds and loans.
The sustainable debt market grew to more than $4 trillion in 2021. Last year alone, sustainable debt saw investing inflows of more than $1.6 trillion.
8. Millennials are Leading ESG Investments
(Source: CNBC)
According to a CNBC poll, 33% of Millennial investors often or exclusively take ESG factors into account when investing. By comparison, only 19% of Gen Z investors and 16% of Gen X investors often account for ESG factors. Only 2% of Baby Boomers consider ESG factors when investing.
9. Europe is Leading the US in ESG Investment
(Source: CityWire)
While the US is traditionally the global hub for investment, Europe is leading the charge when it comes to ESG investing. More than 81% of total ESG investments are in Europe, while the US accounts for only 14% of ESG investments.
The European Union has also implemented much stricter reporting requirements for companies around their environmental impact. This enables fund managers and investors to make more informed decisions about what companies to include in ESG portfolios.
10. Only 3% of 401(k) Plans Offer an ESG Option
(Source: Plan Sponsor Council of America)
Part of what may be holding back ESG investment in the US is that ESG funds aren’t available to the vast majority of 401(k) investors. According to a 2020 survey by the Plan Sponsor Council of America, only 3% of 401(k) plans include an ESG investing option. ESG investments in 401(k) plans make up just 0.1% of total assets in these retirement plans.
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