By Dan Somers of Boundary Capital
The current pandemic is alarming, but the data suggests that we may be affected by other crises in the future. Climate, Disaster and Development Journal predicts that intense floods and storms around the world could double in frequency within 13 years, as climate breakdown and socioeconomic factors combine. Pandemics also are predicted by some to increase more and more from urbanisation, resistance to drugs, and also indirectly from climate change. The U.S. intelligence community’s bottom-line assessment of the risk is plain: “Over 20 years, the net effects of climate change on the patterns of global human movement and statelessness could be dramatic, perhaps unprecedented.”
It’s not all doom and gloom however: There is a groundswell of popular mainstream opinion now demanding that Governments and businesses do more to help the environment and sustainability. Voters, consumers and investors are now voting with their feet to drive more businesses to adopt Environmental, Social, and Governance (ESG) policies.
Here are 5 reasons why ethical investment, also known as Impact Investment, is so hot right now:
Impact Investing is a growing market
Last year, flows into U.S. sustainable funds more than tripled, marking the fourth year of record flows. In 2019, according to the Global Impact Investing Network, assets in this market totalled around $500 billion, based on surveys with 1,300 impact investors.
The climate solutions market could double from $1 trillion a year now to $2 trillion a year by 2025, says BofA.
Emergence from Co-vid 19
Ironically, what the recent Covid-19 ‘lockdowns’ have shown is that environmental pollution can drop dramatically in coordinated activities (planned or unplanned). Recent satellite images from NASA of China also showed less air pollution amid the country’s economic shutdown, due to less transportation and manufacturing. Nitrogen oxide pollution above major cities has decreased by 30% to 50% compared to the corresponding period of last year. And since the lockdown in Italy and the drastic reduction of water traffic and tourism, residents have observed the usually muddy canals run with bright, clearer water with swarms of fishes and the canal bottom clearly visible. More and more people are looking for ways to create such impact, without the reverse consequences of course.
Consumes demanding more ethical products
The U.S. sustainability market is projected to reach $150 billion in sales by 2021, according to Nielsen.
Consumers will no longer support a brand financially if they don’t agree with their social and environmental values. In the face of climate change, those who care enough are ready to consider the consequences of their shopping habits.
A 2019 survey led by Hotwire found that 47% of internet users worldwide had ditched products and services from a brand that violated their personal values. Protecting the environment topped that list.
Investors demanding more ethical investment/growth
The world of investing has until now involved placing educated investments on the products and services that consumers and businesses want, regardless of their environmental or social impact.
Sustainable investing was seen as a niche for well-meaning individuals and socially-responsible companies to place educated investments first and foremost in sustainable companies and projects. The sustainable frameworks were subjective and the economic returns were inferior.
Today things are different. Investors no longer want to be associated with or contributing to companies to may harm society, on the wrong side of new sustainability guidelines or going against popular consumer views and trends.
Investors are no longer just looking to governments to lead these issues. They are taking matters into their own hands and making choices about what they buy, sell and invest in. There is no longer a trade-off, nor is this any longer a niche. Economic advantage and Impact are now intrinsically linked.
Regulation increasingly promoting more ethical investments/growth
The UN has 17 Sustainable Development Goals with 169 targets thereof. Many of these are aimed at governments which will in turn affect commerce and investment.
The Committee on Climate Change reported the government must set a target to cut carbon emissions in the UK to zero by 2050. To achieve this it is going to need help from private capital to finance the transition.
In addition, the London Stock Exchange introduced a Green Economy Mark, recognising companies and investment funds on all segments of the main market and alternative investment market deriving 50 per cent or more of their total annual revenues from products and services contributing to the global green economy.
The EU’s eco-labels for investments will also set the standard and promotion of ethical investment.