- An estimated 56 percent of global investors are preparing to increase their ESG investments in 2024 amidst escalating climate change challenges.
- This trend is occurring even as awareness among investors about ESG significantly increased in recent years.
- Currently, over 70,000 political and business leaders, diplomats, financiers, and activists are converging on Dubai to discuss ways to avoid environmental disaster due to climate change at COP28.
A new study from deVere Group, an independent financial advisory, asset management, and fintech organization, reveals that more than half of global investors plan to increase their Environmental, Social, and Corporate Governance (ESG)-oriented investments in 2024.
The study, which polled over 800 investors, shows that 56 per cent of global investors are gearing up to increase their ESG investments in 2024 amidst escalating climate change challenges.
These findings come as more than 70,000 political and business leaders, diplomats, financiers, and activists converge on Dubai to discuss ways to avoid environmental disaster due to climate change at COP28, the annual international climate summit convened by the United Nations.
Surge in ESG investments mirrors shift in investor mindset
Regarding the survey, deVere Group CEO and Founder Nigel Green says the surge in ESG-oriented investments is not just a statistical blip; it mirrors a fundamental shift in investor mindset.
“People are increasingly drawn to ESG investments for a multitude of reasons, spanning ethical considerations to financial prudence. Investors are increasingly aware that their capital can be a force for positive change. ESG investments allow them to channel funds towards companies that actively contribute to a sustainable and socially responsible future,” he explained.
Green says, far from being a sacrifice for moral high ground, ESG investments are proving to be financially astute.
“Numerous studies suggest that companies with high ESG scores tend to outperform the market, and Reuters has reported that ESG-positive funds outperformed globally over 5 years. Not only are companies with high ESG ratings often better positioned to weather market volatility and capitalize on emerging opportunities, ESG factors are increasingly recognized as critical elements in risk assessment,” he added.
According to the report, companies with robust environmental, social, and governance practices are better equipped to navigate regulatory changes, reputational risks, and operational challenges.
“Investors are, therefore, drawn to ESG investments as a means of fortifying their portfolios against unforeseen risks,” notes the deVere CEO.
Governments and regulatory bodies worldwide are also embracing sustainability measures. “Unsurprisingly, investors are keen on future-proofing their portfolios by aligning with these shifting regulatory requirements. ESG investments position portfolios to thrive in a world where sustainable practices are not just a preference but a regulatory imperative.”
Rising awareness on ESG among investors globally
For four consecutive quarters, the market has seen outflows from ESG funds in both the US and Europe and elsewhere, amid rising energy prices and political backlash.
“Awareness among investors about ESG has been increasing in recent years. But we should work harder to ensure it is consistently at the heart of investment decision-making,” says Green, adding that, “Climate change is a key defining issue of our time. It will be a critical determinant in long-term financial returns, and the highest net economic benefit is reducing the impact of climate change.”
He concludes: “This survey reflects a broader shift in investor consciousness – a realization that investing in a sustainable future is not only ethical but also a savvy financial strategy.
“As we navigate the complexities of the contemporary investment landscape and an intensifying climate crisis, ESG-focused investments emerge not only as a path to profitability but as a commitment to building a better world.”
Africa likely to benefit from ESG funds
Latest data from Standard Chartered Bank indicates that as capital continues to accumulate in ESG funds, Africa is likely to be a major beneficiary—especially as many countries in the region have strengthened their sustainable bond markets.
For instance, Ghana announced in 2021 that it was considering issuing $2 billion worth of green and social bonds, with proceeds being deployed to fund development programs. Other African markets are also following in the footsteps of Europe and parts of Asia and North America by compelling listed companies to disclose information about their ESG policies.
“While African markets are giving serious thought to ESG issues, governance continues to be an Achilles’ heel in certain countries. In the absence of strong governance, companies are at risk of not meeting their ‘E’ and ‘S’ objectives. If ESG in African markets is to thrive, then governance is something that needs to be urgently improved upon in many countries,” the report reads.