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5 Drivers Behind the Sustainable Investing Shift

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5 Drivers Behind the Sustainable Investing Shift

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Against all odds, sustainable investing in the U.S. smashed records in 2020.

Estimated net flows reached $20.9 billion in the first six months alone—that’s nearly equal to the amount of new money invested in all of 2019.

What is driving the shift to sustainable investing? This visual dashboard from Raconteur explains five key drivers, from generational shifts to investors’ preferred strategies.

DRIVER #1:

Millennial Investors and Personal Beliefs

Interest in sustainable investing is booming across the general population. However, there’s a clear generational trend, as well.

While the portion of each group that is “very interested” in sustainable investing has shot up since 2015, this share is significantly higher for millennials.

YearGeneral PopulationMillennials
201519%28%
201723%38%
201949%70%

Another correlated trend emerges with this.

These days, investors are more likely to follow their conscience. Acccording to a recent report by Schroders, the majority of investors will not budge on investing against their beliefs, even if returns were theoretically higher.

Level of Investment Knowledge
Would you invest against your personal beliefs?BeginnerIntermediateExpert
Yes, if returns are higher18%20%29%
No, I would not invest against my beliefs.82%80%71%
DRIVER #2:

Top Themes of Interest

Powered by these personal beliefs, which categories are attracting investors? It turns out many investors are very interested in including environment-related themes into their portfolios:

  • Plastic reduction: 46%
  • Climate change: 46%
  • Community development: 42%
  • Circular economy: 39%
  • Sustainable Development Goals: 36%
  • Multicultural diversity: 30%
  • Gender diversity: 30%
  • Faith-based values: 24%

However, these aren’t the only considerations. Other themes that fit into broader ESG categories such as gender diversity or faith-based values make an appearance, too.

DRIVER #3:

Which Investor Groups are Driving Interest?

Now, we turn our attention to the specific groups that are responsible for the growing momentum towards sustainable investing. This may be surprising to some, but it is institutional investors that are leading the pack by far:

GroupShare of Group
Institutional investors85%
Institutional consultants39%
Internal stakeholders30%
High net worth (HNW) investors19%
Politicians or regulators13%
Industry trade bodies6%

This also disproves a common myth that millennials are the only ones interested in the sector. Institutional investors equally want to see a double bottom line: an ROI on their money, while also making the world a more sustainable place.

DRIVER #4:

Sources of Information

So where are institutional investors sourcing their information around sustainable investing? Sharing their ideas in like-minded communities, such as webinars and conferences emerged as the preference for nearly two-thirds of those surveyed in this group.

But how do investors know that their investment is truly sustainable? For this, 34% of global investors feel that third-party labels from independent organizations help lend credibility, and confirm that the chosen investment in question is indeed carried out in a responsible manner.

As more and more institutional investors are digital natives, a significant share of them are also beginning to use social media to influence their decision-making process—and some even rely on it as their key source of research.

DRIVER #5:

Sustainable Investing Strategies

We’ve left the best for last—armed with this knowledge and confidence, which sustainable investing strategies are the most attractive? Here’s how organizations are approaching ESG:

  • Sustainability integration: 52%
  • Negative screening: 50%
  • Shareholder engagement: 31%
  • Impact investing: 19%
  • Positive screening: 12%
  • Thematic investing: 5%

While negative screening—avoiding investments in “sin” stocks such as tobacco or fossil fuels—is still a popular strategy, actively integrating sustainability into one’s portfolio is emerging more front and center.

The Overall Trend of Sustainable Investing

The data makes clear that institutional investors are the main driving forces behind sustainable investment for the time being. But as millennials accumulate wealth, their values may naturally lead them towards more sustainable investment.

Another important point to note is that sustainable investing has been resilient to change. In fact, despite the COVID-induced stock selloff in early 2020, ESG leaders exceeded expectations.

While these drivers evolve over time, it’s clear that sustainable investing is more than having its moment in the spotlight—it’s here to stay.

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Visualized: An Investor’s Carbon Footprint, by Sector

Which sectors are the largest contributors to emissions? From energy to tech, this graphic shows carbon emissions by sector in 2023.

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Visualized: An Investor’s Carbon Footprint, by Sector

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The following content is sponsored by MSCI
Visualized: An Investor’s Carbon Footprint, by Sector

Visualized: An Investor’s Carbon Footprint, by Sector

In the quest for a sustainable future, investors can play a crucial role in shaping our planet’s destiny.

Understanding the carbon emissions in different sectors is a key way to make environmentally and financially conscious decisions and help make a positive impact on the planet.

This infographic, sponsored by MSCI, looks at carbon emissions by sector.

Types of Carbon Emissions

Unsurprisingly, industries heavily reliant on fossil fuels and energy-intensive processes, like energy, materials, and industrials, have significant carbon footprints. In contrast, service-based and technology industries are traditionally less carbon-intensive.

To get an accurate picture of a sector/industry’s carbon footprint, it’s important to look up and down their value chain. Here is how policymakers categorize carbon emissions:

  1. Scope 1: Generated directly by the organization and within its control e.g., on-site fuel combustion and internal industrial processes.
  2. Scope 2: Indirect emissions from energy use, such as purchased electricity, heat, or cooling.
  3. Scope 3: Indirect emissions, but different from Scope 2 emissions. These are emissions that the company does not directly control such as the emissions produced from a supplier or emissions generated from the use of its sold product.

Only looking at all three scopes of emissions can we arrive at a complete picture of a sector’s carbon footprint.

Volume of Carbon Emissions, by Sector

The following table breaks down the greenhouse gas emissions for each sector by scope. A sector’s carbon footprint is expressed in metric tons of CO2 equivalent for every $1 million in financing.

In other words, here’s how much of a climate impact a one million dollar investment has in each of the following sectors.

The total figure represents the weighted average carbon emissions of each sector’s constituents as of August 10, 2023:

SectorScope 1
Scope 2
Scope 3
Total
Energy263.327.22827.53118.0
Materials298.482.81349.21730.4
Utilities461.416.0405.5883.0
Industrials32.68.3425.1466.0
Consumer
discretionary
5.09.0372.2386.2
Consumer staples16.512.4276.4305.3
Information
technology
2.05.879.387.1
Health care1.82.470.975.1
Financials4.01.158.363.4
Real estate1.45.946.854.0
Communication
services
0.64.740.545.8

Represented by tCO₂e/USD million EVIC. EVIC is the enterprise value including cash.

Understanding carbon footprint profiles can help investors evaluate the risks faced by carbon-intensive industries, such as future regulations and reputational challenges.

MSCI’s climate metrics empower investors to make responsible investments and drive meaningful change.

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Download MSCI’s Climate Metrics Report.

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