The environmental, social, and governance investment theme just finished a great year in 2021 as momentum behind social responsibility helped propel changes across many market sectors and push regulators, driving increased inflows to sustainable investment strategies.
Factors like more frequent extreme weather disruptions and events that highlighted social justice issues, like the killing of George Floyd, fueled the drive toward ESG principles, Reuters reports.
Consequently, with ESG in the limelight, investors have plowed into sustainable investments to further support the global change. A record $649 billion flowed into ESG-focused funds worldwide through Nov. 30, compared to $542 billion and $285 billion that flowed into such funds for 2020 and 2019, respectively, according to Refinitiv Lipper data.
ESG funds make up 10% of total worldwide fund assets.
Company stocks that enjoyed higher sustainability ratings have also seen shares outperform. The MSCI World ESG Leaders’ index increased 22% in 2021, compared to the 15% advance in the MSCI World Index.
“It was a watershed year,” Tim Smith, a director at investment management firm Boston Trust Walden, told Reuters.
Activist investors were also taking on a greater role in corporate America as an agent of change. Support for social and environmental proposals during shareholder meetings of U.S. companies jumped to 32% in 2021, compared to 27% in 2020 and 21% in 2017, according to the Sustainable Investments Institute data.
In comparison, back in 1971, only 1% of General Motors’ shareholders backed an investor resolution to cut ties from South Africa due to the country’s racist social policies.
Regulators are also pushing forward new measures to require ESG disclosures as a priority. The U.S. Securities and Exchange Commission asked money managers about the ESG classifications for their funds and could provide clearer guidelines on corporate disclosures on ESG issues like carbon emissions.
Europe remains the vanguard in the push for wider ESG acceptance. The European Commission finalized a major portion of its “sustainable finance taxonomy” rulebook on corporate activities that are labeled as climate-friendly. Furthermore, of the $6.1 trillion in ESG funds, 59% is held in Europe, the Middle East, and Africa, according to Lipper data.
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