Rapid evolution in the investment world continue to develop. And the Environmental social governance have found their way ( ESG ) criteria have found their way leading to the investment mainstream. One estimate in mid-2020 put the value of assets under management (AUM) applying ESG principles at more than US$40 trillion. There are some understandable questions raising regarding the rapid growth recently happened in the ESG, how likely sustainable will this upward trend be? If or not the investors will keep pushing towards ESG investment or will there be the same enthusiasm? And many more arguments about the multiple factors which might continue to underpin the case for ESG. In the context three main factors can be highlighted.
The first factor is the increased levels of ESG interest in geographic areas such as Asia.
The second factor is the deepening (figuratively and literally) of ESG investment to include such areas as the “blue economy” and new investment vehicles.
The third factor relates to the impact of COVID-19 on government finances; with these under increasing pressure due to the coronavirus pandemic, private ESG investment may help to counteract shortfalls in areas previously funded by governments or multilateral institutions.
In the recent years there are variations seen in the sustainable investment principles and investor interest in ESG all around the world. Europe being the first and the United states being the second leaders. ESG is broadening out, not just within individual markets but across geographies. There is an increased interest in ESG investment in Asia, growing fast, confounding old “received wisdom” about why ESG would be less applicable in the region. But the applications of ESG many vary according to the regions and some find difficult than other regions. Many emerging economies, for example, have a growing middle class that may have an increasingly positive attitude towards sustainable investing. And the possible and obvious dangers are visible to these populations. Rising sea levels increasingly concern not only small islands but also some highly developed economies. Another advantage for many Asian economies is the region’s strong technology base, which could help implement much ESG investment (and also provide data to assess its impacts).
The broadening of the investment universe to address the growing interest in new areas such as the “blue economy” and including new financial instruments are the second argument for ESG investment. Biodiversity and nature’s contribution to the global economy has been one factor behind the greater interest in the “blue economy” (defined as economic activity directly or indirectly connected to oceans, coastal areas, lakes and rivers). According to one estimate, so-called “ecosystem services” are worth US$125-140 trillion each year—more than 1.5 times the value of conventionally measured global GDP. In 2019, according to the Climate Bond Initiative, the total issuance volume for green bonds was $257 billion (a new world record), but this is still a small share of the overall bond market. The sub-sector of “blue” finance is even smaller, albeit with some interesting initiatives such as recent fundraising by the Nordic Investment Bank for wastewater treatment, pollution and climate-change adaptation. Meaning that there is a plenty of room for growth in both “green” and “blue” investment. Of course, the ESG-investment path will not be a completely smooth one; debate will, quite rightly, continue around its performance measurements versus those of other investments
Green and blue investment might change, with private-sector funding increasingly complementing that from official national or multilateral sources.
The growing technology in all the three factors will help boost the knowledge on multiple levels from the profound level to profane. Like investing in better suiting long tern needs of the population. . Altogether, we really are living in “environmental times”.