Follow the money. Even if that money is leading to environmentalism, a concept previously seen as driven by fringe, left-wing hippies, running around hugging trees in California.
Not anymore. Recent studies have shown that sustainable investing or impact investing has rocketed to become over 30% of total assets under management. In two years, impact investing has seen tremendous momentum, growing from around $12 trillion AUM to over $17 trillion. This is an astounding 42% growth.
So, why the growth? And who or what is driving it? Also, what’s the short-term prognosis for investors?
These are all great questions.
The short answer is that impact investing is no longer a fringe, feel-good story. The fact is that the U.S. is losing on environmental innovation to its top competitors. A recent study has shown the United States falling to 13th in infrastructure quality behind global competitors such as Japan, France and Germany.
With the incoming administration promising to spend $2 trillion dollars over the next 4 years to implement a green infrastructure, major companies will be lining up for contracts. This means investment opportunities around renewable energy technology, electric battery companies and home builders who can combat extreme weather will be in high demand.
The growth is driven by both retail and institutional investors into “ESG Funds” which have seen tremendous growth:
The short term prognosis for investors is that this is still in the early innings as far as an opportunity. While we will continue to see money poured into ESG funds in the public market, I would expect an even greater opportunity in the private marketing. Equity Crowdfunding will give private investors the opportunity to invest in the latest sustainable technology before it hits the public market.
In any case, a triple bottom line approach to investing (people, profit, planet) can only move us forward in meaningful direction.