As we wrap up a stellar 2020 for socially responsible investing, investments that track environmental, social, and governance principles may be looking at another big year.
Linda-Eling Lee, global head of research for MSCI’s ESG Research Group, argued that after an “extraordinary year” in 2020, ESG-themed investments should maintain their momentum as interest in sustainable and socially responsible investing continue to gain in popularity, CNBC reports.
“We were not necessarily expecting this to be the year where ESG really takes off, but clearly it has attracted a lot of attention, both in terms of the companies and what they’re doing from an ESG perspective [and]certainly from a flows point of view,” Lee told CNBC.
Lee highlighted climate change as a leading ESG trend to monitor in 2021.
“Despite all the lockdowns that we’ve had this year, we’re still on track for a world that is going to be too warm to sustain life as we know it, according to climate science,” Lee said. “You’re going to see lots more investors really shifting capital towards less carbon-intensive assets.”
A Gorilla In The Room
Consequently, Main Management’s CIO Kim Arthur believed that investors will soon have to address “the big gorilla in the room”, or finding the best way to invest through various ESG-based funds on the market.
“We subscribe to multiple databases. There is no easy button to screen for ESG,” Arthur told CNBC. “What ends up happening is since there is no standard definition, each client that comes in is almost a bumper sticker.”
Arthur explained that investors may prefer to be exclusionary with no casino operators or tobacco companies, or those who simply look for names considered to be best in class.
In the end, “it’s not easy” to be a money manager in an ESG-based investment, Arthur added.
Jon Hale, head of sustainability research for the Americas at Morningstar, advised investors to use ESG as an add-on to other strategies for a more rounded portfolio.
“Different ESG funds also have different exclusions that they use, so they can be quite different,” Hale told CNBC. “I think the best way to think about it is that you can add ESG onto a number of different investment styles and approaches.”
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