Demand for sustainable investments is strong and growing steadily

Brian Haugh, Head of BDO Valuation & Financial Modelling Centre featured in The Irish Times Special Report on the Irish Funds Industry.

Socially responsible investing is far more than just a bubble, it’s now breaking all records. What investing based on ESG (environmental, social, and governance) factors exactly constitutes can be tricky to define but funds insiders say the appetite for funds with genuine sustainable credo shows no signs of slowing down.

Demand for sustainable investments overtook traditional products in 2020, and global sustainable fund assets more than doubled in 2021. With Bloomberg Intelligence suggesting assets could reach $50 trillion by 2025, observers say that within a matter of years, 100 per cent of investments will consider ESG risks and opportunities.

“While this area has been gathering momentum for some years there is a sense that it is really picking up pace of late. In 2021, investment in ESG funds approached $700 billion, more than double the 2019 figure, and now makes up 10 per cent of worldwide fund assets,” he adds.

Brian says he is slow to ascribe too much of this acceleration to the pandemic, but he admits that the early data does seem to suggest that ESG investments have been more resilient over the pandemic than ESG-neutral ones, “which will give investors’ confidence in the area”. Rather, he believes that a growing realisation of the realities of climate disaster has pushed the needle more firmly in this direction.

‘Climate catastrophe’

“I believe that Cop26, the publication of the IPCC reports, and the subsequent media coverage of these, was probably a bigger factor. I think that there was an urgency about the coverage that was missing when previously reporting on climate issues, and this seems to have focused the mind of policy makers, investors and the general public on taking big and decisive actions now to avoid climate catastrophe,” he says.

Brian cites the Glasgow Finance Alliance for Net Zero pledge of $100 trillion to finance climate action projects, and says this “will have focused the mind of a lot of fund managers”.

“This pledge by 450 banks, insurance funds, money managers, and other investors, combined with the greater clarity around definition of green investment provided by the EU taxonomy, has the potential to channel investment into green finance on an unprecedented scale,” he explains.

“There will be a $100 trillion green finance market up for grabs over the next decade, and fund managers who can credibly demonstrate how they can help deliver on this net-zero ambition can expect to be extremely busy”.

Content adapted from The Irish Times.