Report reveals seismic change in investment thinking: 'You've got to be attuned to where the economy is going'
A major shift is underway in the investment sector. Experts forecast that environmental, social, and governance considerations will become secondary concerns as financial returns take priority in investment decisions.
A Pensions & Investments report highlights how regulatory and political pressures are pushing asset owners and money managers to rethink their investment strategies.
Citing industry experts, including Kirsten Spalding of Ceres and Maulik Doshi of Steward Redqueen USA, the P&I report reveals that many institutional investors remain committed to sustainable investing despite increasing scrutiny spurred by the ESG movement. However, some firms are shifting their messaging to emphasize financial returns, which is also in compliance with new regulations.
Reiterating the need to move beyond the container approach, Doshi said, "The principal North Star for the investment-decision process is around financial returns." This, however, doesn't mean investors are discarding ESG considerations.
Companies focused on eco-friendly energy remain some of the smartest long-term investments. While the ESG bubble was built on broad misguided strategies, eco-friendly energy remains a fundamentally strong investment. Even as investors adjust their messaging to new regulations, the momentum for a clean economy continues to grow.
According to the International Energy Agency, investments in eco-friendly energy now double those in dirty energy. Of the estimated $3 trillion global energy investment, approximately $2 trillion is allocated to eco-friendly energy technologies and infrastructure. Unlike dirty energy investments, which are prone to price shocks and geopolitical risks, eco-friendly energy investments offer stability and long-term growth potential.
Aside from high expected returns, the clean economy also fuels job creation and economic resilience. In fact, the U.S. Bureau of Labor Statistics reports that wind turbine technicians and solar panel installers are the country's top two fastest-growing jobs.
So, what does all this mean for the future of investing?
Rather than abandoning sustainable investing, asset owners and money managers should refine their approaches. Instead of considering ESG as a catch-all label, backing eco-friendly energy and resilient businesses will enable them to prioritize financial returns while supporting Earth-friendly practices. In other words, long-term trends — not short-term politics — are what will lead to major financial wins in the years ahead.
As Spalding said in the P&I report, "You've got to be attuned to where the economy is going, and how you get ahead of it, so that you stand to benefit, and companies you invest in stand to benefit."
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