The impact of climate change recently dominated January’s World Economic Forum in Davos, Switzerland. Increasingly, more and more investors are choosing to align their money with their values to influence corporations to halt business practices believed to damage the planet, as well as improve economic diversity to ensure a wide range of voices are heard at every societal level. As such, ESG funds (which focus on environmental, social, and corporate governance objectives) have enjoyed net inflows for several years, with Morningstar reporting ESG fund flows in 2019 were nearly four times higher than 2018 levels.
Many individuals have recycled plastic, aluminum, and paper for years and have swapped out incandescent bulbs for LEDs, but we are just starting to exert indirect pressure via how we invest.
Recently, the CEO of BlackRock – a money manager overseeing $7 trillion of wealth – announced that it will make climate change a primary focus which will likely reshape how Wall Street invests. This will not only include exiting certain investments which have a high risk related to sustainability (e.g., fossil fuels) but also proactively pressing corporate managers to adhere to the Paris Climate Accord. As such, we believe passive indices will increasingly compete on improving the use of ESG indices now that the race to razor-thin expense ratios is nearly complete. BlackRock’s CEO is convinced that it needs to engage more proactively with boards by using its investment clout to force faster change.
At JNBA, we have been having meaningful discussions with clients around ESG, otherwise known as Impact Investing. Although some recent research suggests one can improve investment returns by incorporating ESG criteria into your investment process, this is clearly about more than financial returns. If you are interested in learning more about ESG investment options for your portfolio, we encourage you to have a discussion with your Advisory Team.
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